## Contents

### Performance report 6

- Overview 7
- Foreword by the Secretary of State 7
- Report of the Permanent Secretary 8
- Our highlights in 2018-2019 9
- Our purpose 11
- What we are aiming to achieve 11
- Our business model 12
- How we are organised: our organisational structure 13
- How we are organised: our group 14
- Where we spent our money in 2018-19 15
- Risks affecting delivery of our objectives 17
- Performance analysis 21
- Our performance in 2018-19 21
- UN sustainable development goals 30
- Financial review 36
- Sustainability report 45
- Other required performance reporting 48

### Accountability report 50

- Statement of Accounting Officer’s responsibilities 51
- Directors’ report: our leadership team 52
- Governance statement 54
- Staff report 65
- Remuneration report 80
- Statement of Parliamentary Supply 89
- Parliamentary accountability disclosures 100
- Audit report 108

### Financial Statements 112

- Consolidated Statement of Comprehensive Net Expenditure 113
- Consolidated Statement of Financial Position 115
- Consolidated Statement of Cash Flows 118
- Consolidated Statement of Changes in Taxpayers’ Equity 120
- Notes to the Accounts 123

### Trust Statement 226

- Accounting Officer’s foreword to the Trust Statement 227
- Statement of Accounting Officer’s responsibility for the Trust Statement 232
- Audit report 234
- Statement of Revenue, Other income and Expenditure 237
- Statement of Financial Position 238
- Statement of Cash Flows 239
- Notes to the Trust Statement 240

### Annexes 248

- Annex A: Common core tables 249
- Annex B: Glossary 258 BEIS delivered phase 2 of the Shared Parental Leave campaign in 2018-19, to raise awareness to employees and employers and increase its uptake among parents. Overview

This section gives a summary of our department, its purpose, the key risks to the achievement of its objectives, and how it has performed during the past year.

Foreword by the Secretary of State

As we enter the third year of this department, I am immensely proud of our achievements. I am also very grateful for the hard work of my officials, ensuring the UK is best placed for economic growth and prosperity in this time of change.

For our modern Industrial Strategy, this year has been one of delivery. We have agreed ten Sector Deals catalysing private investment in the industries of the future. This includes over £1.5 billion co-investment in solving the most pressing medical challenges, establishing the UK as a leader in innovative new battery technologies, and a plan to boost the UK’s Offshore Wind export potential five fold to £2.6 billion per annum. We have also launched the first of many Local Industrial Strategies to build prosperous communities across the country.

The government is supporting workers now and for the jobs of the future, with the biggest reforms to labour market regulation in a generation. We have seen record employment this year while increasing focus on improving the quality of work. We are committed to providing not only jobs with fair employment practices, but those that develop skills throughout people’s careers and are suited to the needs of future sectors. We have also increased the National Living Wage and Resolution Foundation research shows the share of workers on low pay is at its lowest level since the 1980s.

We are working to ensure the UK remains a great place to do business, while re-building consumer trust in markets. We are continuing our reform of corporate governance and the audit industry, to improve diversity and accountability in boardrooms. We published the National Security and Investment white paper, proposing an effective security regime for foreign investment. We have also provided more than £5.5 billion to thousands of small and medium businesses through the British Business Bank, to boost entrepreneurs across the country.

Clean growth and addressing climate change are at the heart of our Industrial Strategy and future prosperity, as evidenced by legislating to achieve net zero greenhouse gas emissions. In response to the Dieter Helm Cost of Energy Review I set out the government’s vision for a fair, low-carbon and efficient energy market. The Tariff Cap now means that every household is protected whether through the cap or through our measures to make switching suppliers easier. Our ongoing support for the UK renewables sector, including the Sector Deal in off-shore wind generation, has strengthened our de-carbonisation commitment and we have now seen the first fortnight without coal power in the UK since the start of the industrial revolution.

Looking forward, we will continue to deliver our modern Industrial Strategy, work together with and advocate for businesses, workers and consumers, and build an economy that works for everyone as we leave the EU. Report of the Permanent Secretary

BEIS is at the heart of the government’s commitment to build an economy that works for everyone, with great places across the UK for people to work and for businesses to invest, innovate and grow.

In the last year we celebrated the first anniversary of our Industrial Strategy. We have made great progress across the five foundations of productivity: ideas, people, infrastructure, business environment and places. We created UK Research and Innovation to bring together our research agenda and accelerate commercialisation as drive towards our 2.4% investment target by 2027. Most recently, we agreed the 10th Sector Deal with key industries, helping to create thousands of high-quality, high-skilled jobs across the country.

We used the Industrial Strategy as a framework for our EU Exit preparations. Together with our Partner Organisations, we prepared for deal and no-deal outcomes, ensured our legislative and international obligations were in place and worked with businesses, workers and consumers to keep them informed, gather their views, and help them prepare.

We also continue to focus on creating a regulatory framework to support competitive markets, make the UK a great place to start and run a business, and give both workers and consumers a fair deal. In December 2018 we published the Good Work Plan, outlining our vision for the future of the UK labour market. BEIS policies will protect workers’ rights, ensure fair pay and increase transparency in the business environment.

In the energy sector, Ofgem’s implementation of the Tariff Cap protects vulnerable consumers, whilst the smart meter rollout enables consumers to take better control of their energy use. We hosted the first ever Green Great Britain Week to showcase low-carbon technologies and meet the Clean Growth Challenge. A third of UK electricity was generated by renewable resources in March 2019. As part of our global climate leadership, we also funded projects to support 47 million people to cope with the effects of climate change.

Finally, last year we completed our corporate Transformation programme, and launched a new plan for Organisational development, to build a flexible, innovative, collaborative and business facing department. This includes our commitment to increase representation of BAME staff, people with disabilities and LGBT+ staff at all grades, within BEIS and our Partner Organisations, to reduce our gender pay gap and support social mobility and progression.

I am proud to lead a department made up of such talented, hard-working and professional people. In a fast-changing and challenging environment, we will need to continue to give our best. Our highlights in 2018-2019

£1.1 billion allocated in the 2018 Autumn budget to fund research in quantum technologies, clean growth and decarbonisation, mobility and ageing, and artificial intelligence.

Launched the Grand Challenge Missions: using AI to treat diseases, helping people enjoy at least five extra years of healthy life by 2035.

Government and industry committed to ten Sector Deals, the most recent on offshore wind.

Place the UK at the forefront of new automotive technology development, investing in electric vehicle R&D and supply chain competitiveness.

The National Living Wage increased to £8.21 in April 2019. This above-inflation increase is expected to benefit 1.8 million people.

The Good Work Plan set out the vision of the future of the UK labour market, the biggest upgrade to workers’ rights in a generation. Through the **British Business Bank**, we supported over 78,000 smaller business with more than £5.5 billion.

A landmark speech by our Secretary of State outlined the four principles of the **power sector** for a market-led approach to future energy policy development.

The first **Green Great Britain Week** demonstrated how clean growth technologies are driving job creation and tackling climate change.

The **Domestic Gas and Electricity (Tariff Cap)** Act 2018 came into force on 1 January 2019, to protect millions of energy customers across England, Wales and Scotland.

We continued to prepare for **EU Exit** and legislated for a new nuclear safeguards regime - one of the first pieces of EU Exit legislation and putting the UK on track to meet its international obligations on day one of exit.

We completed our **Transformation programme** and developed a new plan for Organisational development to continue to build a flexible, innovative, collaborative and business-facing department. Our purpose

Our vision is an economy that works for everyone – with great places in every part of the UK for people to work and for businesses to invest, innovate and grow.

What we are aiming to achieve

**Deliver an ambitious industrial strategy** We will develop a modern, long-term industrial strategy that lays the foundations for reinvigorating UK economic performance and boosts earning power throughout the country. We will cultivate world-leading science and innovation, build on local strengths and foster enterprise to ensure every place meets its potential.

**Maximise investment opportunities and bolster UK interests as we leave the EU** We will deliver the best results for the UK from exiting the EU by creating a world class business environment that drives investment and employment. As we build our new relationship with the EU we will maintain business and investor confidence and ensure their interests are reflected in the negotiations.

**Promote competitive markets and responsible business practices** We will secure better outcomes for consumers by creating a more competitive environment for business and industry. We will improve corporate governance and ensure the labour market offers everyone the opportunity to obtain quality, well-paid jobs and better working conditions.

**Ensure the UK has a reliable, low cost and clean energy system** We will upgrade and diversify our energy supplies to meet future needs – ensuring they are smarter, cleaner, more secure and affordable for consumers and businesses. We will promote clean growth and take action to tackle climate change, working in partnership with business and international communities.

**Building a flexible, innovative, collaborative and business facing department** We will elevate BEIS from a well-functioning department to an exceptional one which delivers for business on our strategic priorities in relation to the Industrial Strategy, EU exit, and clean growth. We will enable digital, data and technology to deliver exceptional services for our staff as well as the people and businesses we serve.

## Our business model

| Our work and stakeholders | |---------------------------| | Following ministerial priorities, we design and implement policy relating to: the government’s Industrial Strategy; business; science and innovation; energy and clean growth; and climate change. We build strong and collaborative relationships with all our stakeholders including: businesses and business representative organisations; workers and their unions; and consultations with the wider public. We also work closely with our partner organisations and other government departments. |

| Our people | |------------| | Our core Department is made up of 3,776 people with regional offices across the UK. We are organised in seven groups; each led by a Director General, and these groups are in turn divided into 40 Directorates. |

| Our partner organisations | |---------------------------| | We also deliver our business through 40 partner organisations that employ more than 30,000 public servants. Our network of partner organisations is one of the largest in government, with a wide span of policy and operational responsibilities. These range from large organisations such as UK Research and Innovation and the Nuclear Decommissioning Authority, through medium-size organisations working on regulation such as the Competition and Markets Authority, to advisory committees including the Committee for Climate Change. |

| Our funding | |-------------| | Our annual funding is agreed with Treasury and Parliament. In 2018-19, we were responsible for the efficient stewardship of £12.1 billion of departmental funds. | How we are organised: our organisational structure

### Our ministers

| Position | Name | |----------|------| | Secretary of State for Business, Energy and Industrial Strategy | The Rt Hon Greg Clark MP | | Minister of State for Energy and Clean Growth | The Rt Hon Claire Perry MP | | Minister of State for Universities, Science, Research and Innovation | Chris Skidmore MP | | Parliamentary Under Secretary of State, Minister for Business and Industry | Andrew Stephenson MP | | Parliamentary Under Secretary of State | The Rt Hon Lord Henley |

### Our management: non-executives

| Role | Name | |------|------| | Lead non-executive board member | Archie Norman | | Non-executive board member | Nigel Boardman | | Non-executive board member | Stephen Carter | | Non-executive board member | Carolyn McCall | | Non-executive board member | Leena Nair | | Non-executive board member | Kathryn Parsons | | Non-executive board member | Stuart Quickenden |

### Our management: executives

| Role | Name | |------|------| | Permanent Secretary and Accounting Officer | Alex Chisholm | | Director General, EU Exit & analysis | Sam Beckett | | Chief Business Adviser | Nick Chism | | Director General, Energy Transformation & Clean Growth | Julian Critchlow | | Director, Policy Delivery & Private Office | Caleb Deeks | | Director General, Corporate Services | Sarah Harrison | | Acting Director General, Business Sectors | Gavin Lambert | | Acting Director General, Industrial Strategy, Science and Innovation | Sam Lister | | BEIS Scientific Adviser | Professor John Loughhead | | Director General, Market Frameworks | Jaae Samant | | Chief Financial Officer | Tom Taylor | | Director, Organisational Development | Doug Watkins | | Director General, Energy & Security | Joanna Whittington | How we are organised: our group

Public sector bodies can be grouped by level of control the core Department has over them.

- Our executive agencies act as an arm of the core Department, undertaking executive functions, rather than policy advice.
- Other bodies in the Departmental Group are separate legal entities, but the core Department usually sets their strategic framework, appoints the chair and all non-executive members of board, and is consulted on the appointment of the CEO.
- The wider Departmental Group includes other public-sector bodies which work to achieve our objectives but have more authority over their policies and are not consolidated into the group financial statements. See our Accounting Officer System Statement, published separately, for greater detail.

______________________________________________________________________

**Core Department and agencies**

- Committee on Fuel Poverty
- Copyright Tribunal
- Council for Science and Technology
- Government Office for Science
- Industrial Development Advisory Board
- Insolvency Service
- Low Pay Commission
- Nuclear Liabilities Financing Assurance Board
- Office of Manpower Economics
- Office of Product Safety and Standards
- Office of the Regulator of Community Interest Companies
- Regulatory Policy Committee
- UK Space Agency

**Consolidated Departmental Group**

- Advisory, Conciliation and Arbitration Service (ACAS)
- British Business Bank Plc
- Central Arbitration Committee
- Certification Officer
- Civil Nuclear Police Authority
- Coal Authority
- Committee on Radioactive Waste Management
- Competition Appeal Tribunal
- Competition Service
- Electricity Settlements Company
- Financial Reporting Council
- Low Carbon Contracts Company Ltd
- Nuclear Decommissioning Authority
- Oil and Gas Authority
- UK Atomic Energy Authority
- UK Green Infrastructure Platform Ltd
- UK Shared Business Services Ltd
- UK Research and Innovation

**Wider departmental group**

- British Hallmarking Council
- British Nuclear Fuels Limited
- Committee on Climate Change
- Companies House¹
- Competition & Markets Authority
- Groceries Code Adjudicator
- Independent Complaints Reviewer
- Intellectual Property Office
- Land Registry¹
- Met Office
- National Nuclear Laboratory
- National Physical Laboratory
- Nuclear Liabilities Fund
- OFGEM
- Ordnance Survey
- Pacific Nuclear Transport Limited
- Post Office Ltd
- Pubs Code Adjudicator
- Small Business Commissioner

¹ These entities have been re-classified by ONS in 2018-19. See footnote 2 in note 28: list of bodies within the Departmental Group, for an explanation of the impact of this change. Where we spent our money in 2018-19

For the year ending 31 March 2019, the Departmental Group incurred a spend of £12.1 billion. Of this £1.4 billion related to the core Department and agencies, and £10.7 billion related to our partner organisations. The diagram on the next page shows the major areas of spend. The majority of the department’s spend, and policy delivery is through it’s Partner Organisations, including:

- **£7,625 million** by UK Research and Innovation (UKRI), on funding for Science and Research
- **£2,200 million** by the Nuclear Decommissioning Authority (NDA) on managing our energy legacy safely and responsibly.
- **£347 million** by UK Space Agency (UKSA) on delivering an excellent space programme with the maximum economic, scientific and policy benefit for the UK.
- **£208 million** by the British Business Bank (BBB) on supporting small businesses in the UK at all stages of their development.

______________________________________________________________________

2 This expenditure corresponds to the net total DEL expenditure for our Departmental Group. DEL is the controllable budget total, issued by HM Treasury on behalf of Parliament, that we use to fund delivery of our strategic objectives. It excludes AME expenditure which represents volatile, demand-led spend and technical accounting matters. These concepts are fully explained on page 36. Where we spent our money in 2018-19

£12,060m

- Core Department
- Executive agencies
- Partner organisations

Core Department

- Other £2m

Executive agencies

- UKSA £347m
- Insolvency Service £25m
- BBB £208m
- Diamond Light Source Ltd £113m
- UKAEA £69m
- ACAS £51m
- Coal Authority £29m
- UK SBS Ltd £33m
- Partner organisations - Other £5m

Partner organisations

- Other £5m

£12,060m

- Science and Research £220m
- Government as Shareholder £214m
- Deliver an ambitious industrial strategy £128m
- Taking action on climate change and decarbonisation £98m
- Promote competitive markets and responsible business practices £96m
- Delivering affordable energy for households and businesses £77m
- Maximise investment opportunities and bolster UK interests £315m
- Managing our energy legacy safely and responsibly (£219m)

£12,060m

- UKRI £7,625m
- Nuclear Decommissioning Authority £2,200m
- Capability £424m
- Insolvency Service £25m
- UKSA £347m
- BBB £208m
- Diamond Light Source Ltd £113m
- UKAEA £69m
- ACAS £51m
- Coal Authority £29m
- UK SBS Ltd £33m
- Partner organisations - Other £5m

£12,060m

- Science and Research £220m
- Government as Shareholder £214m
- Deliver an ambitious industrial strategy £128m
- Taking action on climate change and decarbonisation £98m
- Promote competitive markets and responsible business practices £96m
- Delivering affordable energy for households and businesses £77m
- Maximise investment opportunities and bolster UK interests £315m
- Managing our energy legacy safely and responsibly (£219m) Risks affecting delivery of our objectives

Our risk management framework continued to develop and improve over the last year. A detailed narrative is provided in the governance statement section of this report. The table below describes our risk profile: principal risks we have faced during the year and the mitigating actions taken.

Key: Icons in the table map the risks to our objectives

| Relative severity | Change during the year | |-------------------|------------------------| | H High | Increasing risk | | M Medium | Stable | | L Low | Decreasing risk |

| Objective | Description | |-----------|-------------| | Delivering an ambitious industrial strategy | | Maximising investment opportunities and bolstering UK interests | | Promoting competitive markets and responsible business practices | | Ensuring the UK has a reliable, low cost clean energy system | | Building a flexible, innovative, collaborative and business facing department | | Risk | Mitigating activities | Direction of risk trend at year end | |---------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------| | BEIS may fail to prepare for the challenges and opportunities of leaving the EU and the post EU Exit environment, leading to an adverse impact for the UK economy. | ➔ Established a clearly defined EU Exit Senior Reporting Officer (SRO) led portfolio with effective oversight, governance and decision-making structures.\
➔ Successfully accelerated delivery in 18-19 in preparation for all scenario Exit on 29 March 2019.\
➔ Comprehensive internal and external assurance programme, with 46 internal and external reviews concluded across the portfolio (IPA, GIAA and NAO).\
➔ Supported negotiation of the withdrawal agreement. | H | | As a result of political uncertainty and potential economic upheaval following EU Exit, which could be compounded by a challenging Spending Review for the Strategy, there is a risk that partners across government, local areas and industry will not sufficiently engage with and support the Industrial Strategy. | ➔ Close engagement across government to ensure development of wide-ranging, ambitious proposals, ensuring Spending Review bids by departments are aligned with the Industrial Strategy.\
➔ Work with ministers, No.10, and HM Treasury to define ambition and ensure resources are available for implementation.\
➔ Use cross-Government Programme Board, Cabinet Committee and partnerships with local government, Local Enterprise Partnerships, businesses, civic society and academia to drive implementation and measure the impact on the economy.\
➔ Work closely with EU Exit colleagues recognising the potential synergies with Industrial Strategy, and to remain aware of how the negotiations could affect our ability to improve productivity and drive growth across the whole country.\
➔ Effectively engage with UK industry and business through events and comprehensive communications. | M | | A significant incident affects a higher risk nuclear site or key energy infrastructure. This could cause harm to people, energy systems or disrupt energy supplies. | ➔ We have strengthened cyber-security systems, to ensure continuous monitoring and response capability to cyber threats as they occur.\
➔ We have collaborated with the office for Nuclear Regulation and the Civil Nuclear Constabulary to strengthen regulatory frameworks and maintain safety and security.\
➔ We have brought in new emergency planning regulations in line with international best practice. | L | | As a result of ineffective measures to mitigate climate change we fail to create adequate, affordable, reliable access to clean energy for households and business. | ➔ We refined analysis on projected future emissions and identified potential contributions of different policy areas.\
➔ We developed and implemented a range of further policies to deliver emission reductions in line with Clean Growth Strategy commitments.\
➔ We commissioned the Committee on Climate Change report on our long-term greenhouse gas emission targets (which was published in May 2019). | M | | Risk | Mitigating activities | Direction of risk trend at year end | |----------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------| | We fail to adapt employment legislation leading to a rise in unfair employment practices and a failure to deliver ‘good quality work’. | ➔ We have progressed consultations and preparation of clauses to deliver on ‘Good Work Plan’ commitments.\
➔ We have developed robust quality of work metrics.\
➔ We collaborated with DfE to monitor the development and implementation of skills reform programmes, e.g. national retraining schemes, apprenticeships devolution of the adult education budget and T-levels. | M | | BEIS information is lost or compromised through cyber-attack, theft, mistakes or leaks, or a security incident at work harms BEIS ministers, staff or visitors. | ➔ We continue to develop a culture of security through multi-channel staff awareness campaigns to reinforce simple and important security behaviours – technical and physical defences are not enough on their own.\
➔ We are building a more coherent approach to personnel security to mitigate the insider threat and minimise the security vulnerabilities caused by staff mistakes.\
➔ We are implementing a risk-adjusted assurance programme for partner organisation security, and have instituted fora to share best practice and oversee risk.\
➔ We are recognised across government as a lead adopter of active cyber defences and have secured Cabinet Office funding to test them. | H | | We may fail to attract, develop and retain sufficiently skilled staff and support their wellbeing leading to an inability to deliver our business objectives. | ➔ We have ensured senior leaders maintain oversight of teams, tracking that leave is taken, hours worked are proportionate and flexible working options are considered.\
➔ We developed workforce and resourcing plans to identify preferred approaches to attract and retain staff.\
➔ We developed a competitive pay and retention strategy. | M | | Risk | Mitigating activities | Direction of risk trend at year end | |---------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------| | Due to challenges in achieving our business plans we do not deliver some strategic objectives. | ➔ We have conducted zero based reviews, allowing senior leaders enough time and insight to prioritise and support negotiations with HM Treasury.\
➔ We have reprioritised our activities and identified other cost reduction options.\
➔ We have strengthened business planning processes, ensuring budgets remain aligned with our strategic objectives. | M | | We may lack the organisational agility to respond effectively to the external environment, leading to an inability to drive economic growth across the UK. | ➔ We have developed a prioritisation framework to support strategic decision-making.\
➔ We have a dedicated team developing our Target Operating model, to enable improved delivery of our business strategy and Single Departmental Plan.\
➔ We continued to identify future trends through horizon scanning of our external environment and recruited people with the necessary commercial, technical and operational skills. | M | | Evidence base underpinning policy development and delivery is inadequate in terms of availability, quality, or understanding. | ➔ Implementing the updated Green Book guidance to enhance evidence-based appraisal and evaluation of policy proposals.\
➔ Developing the Central Archive for Monitoring and Evaluation Online database, to improve data accessibility and support better analysis and policy decision making.\
➔ We improved departmental training and quality assurance modelling processes\
➔ External assurance from the National Audit Office on our modelling processes. | M | Performance analysis

Our performance in 2018-19

Throughout 2018-19, the department has been preparing for EU Exit across all scenarios. This included directly supporting the HM Government negotiation of the Withdrawal Agreement with the EU as well as preparing for a March 2019 “no deal” Exit.

To prepare for EU Exit, the department delivered:

- the necessary legislation to support EU Exit - the Nuclear Safeguards Act obtained Royal Assent in June 2018, and 100% of the department’s priority No Deal Statutory Instruments (SIs) were laid before the original exit day (29 March), (63 SIs).
- all the new replacement international agreements within its remit, prioritised in the event of no deal exit. These are civil nuclear safeguards agreements with the International Atomic Energy Agency (IAEA) and nuclear cooperation agreements with Canada, US, Australia and Japan, ensuring the continuity of civil nuclear trade after Exit. BEIS agreements not prioritised for no-deal include civil nuclear research, competition and intellectual property.
- 28 technical notices, including oil and gas, climate change, company law and state aid. These notices include guidance about what actions businesses need to take in order to carry on exporting and importing a range of goods and services.
- Mobilised the department in the run up to March 2019 to be prepared for a “no deal” Exit scenario.
- Nine dedicated weekly EU Exit business readiness forums up to 28 March (chaired by the BEIS Director of EU Exit Business Readiness) with business intermediaries: attended by over 70 business intermediaries and representative organisations; two further forums were held following the extension of Article 50.

Departmental resources:

- BEIS initially secured £185.1 million from HM Treasury in 2018-19 for EU Exit preparations, including no deal. Following Q2 Supplementary Estimates, BEIS’ budget allocation was revised to £139.5 million.
- For 2019-20 BEIS has been allocated £190 million for all EU Exit preparations.
- At the time of publishing, BEIS has circa 1,030 FTEs exclusively working on EU Exit; including 79 dedicated programme and project management specialists, and 122 digital experts including 17 digital specialists from GDS.
- BEIS mobilised over 500 staff on a short-term basis within the department, to support ramp up of No Deal contingency activities. This involved temporarily moving staff working on other BEIS objectives to support no deal EU Exit preparations.

Impact of EU Exit on other objectives:

BEIS prioritised EU Exit preparations, as requested by the Cabinet, to ensure appropriate contingencies were in place for March 2019. In parallel, the department continued delivering its departmental objectives with constrained resources, the department’s performance against its objectives is detailed below. We report our performance against the 2018-19 BEIS Single Department Plan (SDP). The indicators are used as part of a combination of evidence to assess the delivery of the department’s priorities. The tables below includes our performance and the latest position against each indicator in the SDP.

1. Deliver an ambitious industrial strategy

Indicators are being developed by the independent Industrial Strategy Council, which held its inaugural meeting on 1 November 2018.

1.1 Build a Britain fit for the future

The Industrial Strategy outlines a long-term plan to boost productivity and earning power of people in the UK by focusing on 5 foundations of productivity: ideas, people, infrastructure, business environment and places.

In 2018-19:

- Business Secretary Greg Clark appointed Andy Haldane as Chair of the Industrial Strategy Council - an independent body established to assess the government’s delivery of the Industrial Strategy; and
- We published the Good Work Plan, which sets out our vision for the future of the UK labour market.

1.2 Support world leading sectors

In 2018-19, we:

- Launched the Nuclear Sector Deal, worth over £200million, which will spearhead cleaner economic growth and promote innovation to develop the technology and skills to maintain the UK’s position as one of the leading nuclear nations;

- Published the Second Life Sciences Sector Deal which contains significant action to transform the prevention, diagnosis and treatment of chronic diseases by 2030. It deepens our partnership with industry, universities and charities and demonstrates how the NHS is pivotal as a delivery partner; and

- Published the Aerospace Sector Deal in December, which positions the UK to take advantage of the global move towards hybrid-electric and electric propulsion and exploit emerging markets such as drones and Urban Air Mobility. 1.3 Invest in science and innovation In 2018-19, we:

- Launched a public consultation on the new Knowledge Exchange Framework which will benchmark universities’ effectiveness at fostering knowledge sharing and research commercialisation; and

- Published the Artificial Intelligence Sector Deal, a 0.95 billion package of support for the sector – during 2018-19 we announced: £100 million to deliver 1,000 new PhDs; a prestigious Turing AI fellowship scheme; new industry funded AI masters places; a chair for the new AI Council; and research to explore data trusts.

1.4 Support business to start and grow In 2018-19, we:

- Secured £31 million of new funding to deliver an £11 million leadership programme for SMEs and £20 million to strengthen local networks;
- Launched the Business Basics Fund 2 which provides up to £2 million for trials to build evidence on how to encourage SMEs to adopt productivity boosting technology or management practices; and
- Announced an artificial intelligence memorandum of understanding with Japan, which creates a new UK-Japanese research programme to help treat patients with chronic degenerative diseases.

1.5 Drive growth across the country In 2018-19, we:

- Published the policy document ‘Strengthened Local Enterprise Partnerships’ in July. This set out how government and Local Enterprise Partnerships (LEPs) will work together to strengthen leadership and capability, improve accountability, manage risk and provide clarity on geography; and
- Published a policy prospectus on Local Industrial Strategies which sets out the objectives and approach to developing local strategies.

2. Maximise investment opportunities and bolster UK interests as we leave the EU

2.1 Promoting interests of UK businesses in EU Exit negotiations In 2018-19, we:

- Worked to secure the right outcome for the UK research base as we exit the EU; and
- Supported the work of the Department for International Trade and the Department for Exiting the EU to ensure the UK can maximise future trading opportunities with the EU and other countries to support delivery of our Industrial Strategy.

2.2 Encouraging inward investment In 2018-19, we:

- Ensured the UK seizes opportunities for investment – each Industrial Strategy Grand Challenge (AI and Data, clean growth, future of mobility and ageing society) represents an open invitation to business, academia and civil society to work together to ensure the UK seizes these opportunities.

| Year | Business investment in the UK (£bn) | |------|-----------------------------------| | Dec 2018 | 46.7 | | Dec 2017 | 46.2 | | Dec 2016 | 43.5 |

Source: Business investment in the UK: October to December 2018; release schedule: quarterly

| Year | Number of Inward investment projects involving Department for International Trade, BEIS, and others | |------|--------------------------------------------------| | 2018 | 1,682 | | 2017 | 1,859 |

Source: DIT annual report and accounts 2017 to 2018; release schedule: annual

2.3 Ensuring our economy is resilient and seizing opportunities In 2018-19, we:

- Announced the second wave of six Local Industrial Strategies: Cheshire & Warrington, Heart of the South West, Leicester & Leicestershire, North East, Tees Valley and West of England; and
- Announced the entire country will benefit from Local Industrial Strategies with the rest of the LEPs forming the final third wave. 2.4 Building the profile of the UK on the international stage

In 2018-19, we:

- Engaged internationally to ensure our Industrial Strategy is well understood globally and benefits from the experience of our international partners; and
- Progressed the investment of £300 million over the next three years in growing and attracting world-class talent.

Between 2011-12 and 2017-18, it is estimated ICF programmes have:

- Supported 47 million people to cope with the effects of climate change;
- Provided 17 million people with improved access to clean energy;
- Reduced or avoided 10.4 million tonnes of greenhouse gas (GHG) emissions (tCO2e);
- Installed 590 MW of clean energy capacity; and
- Mobilised £3.3 billion public and £910 million private finance for climate change purposes in developing countries.

Source: 2018 UK climate finance results; release schedule: annual

3. Promote competitive markets and responsible business practices

3.1 Reforming corporate governance

In 2018-19, we:

- Completed implementation of the measures announced in response to the first consultation on corporate governance reform, with only the publication of research on share buyback outstanding, due to take place next year – we also published our proposals in response to the consultation on insolvency & corporate governance;
- Ran a public consultation on the Registration of Overseas Entities Bill, which will establish a new ownership register of overseas entities that own UK property – following consultation, the draft bill was submitted for pre-legislative scrutiny;
- Responded to the ‘Independent review of the Financial Reporting Council’;
- Initiated the Brydon Review of the Future of Audit, and the CMA’s study on the statutory audit market; and
- Continued to support the Hampton-Alexander Review into FTSE women leaders.

FTSE 350 board positions held by women

| | Oct 2018 | Oct 2017 | |----------|----------|----------| | | 26.7% | 24.5% |

Source: Hampton-Alexander review - FTSE women leaders 3rd report, Improving gender balance in FTSE leadership, November 2018; release schedule: annual. 3.2 Promoting fairness in the labour market

In 2018-19, we:

- Continued to build on the recommendations of the Matthew Taylor review to improve employment practices as well as maintain flexibility for the employer – we published the submissions to the review in May;
- Enacted new measures in April 2019 to give more people access to payslips and information to help ensure they are paid properly;
- Launched new campaigns to raise awareness of shared parental leave and to help workers ensure they get their holiday pay; and
- Enacted a rise in the National Living Wage from £7.83 to £8.21 per hour from April 2019, benefitting around 1.7 million people.

| National living wage as a proportion of median earnings | |---------------------------------------------------------| | Apr 2018 | £7.83 (58.6%) | | Apr 2017 | £7.50 (57.6%) |

Source: National Minimum Wage, Low Pay Commission 2018 Report.

3.3 Ensuring UK has the right regulatory frameworks

In 2018-19, we:

- Published the consultation on modernising consumer markets which sought views on how to provide a better service and more protection to consumers when they interact with markets;
- Delivered seminars to local trading standards authorities looking at how product recall is enacted and how businesses engage with them – 250 local authority trading standards staff have received training; and
- Published the government response to the ‘Brexit: competition and state aid’ report in April and it was debated in May.

3.4 Safeguarding UK interests in investments in national infrastructure

In 2018-19, we:

- Published the draft ‘Statutory statement of policy intent’ on national security and investment and completed a white paper consultation seeking views on proposed reforms to government’s powers for scrutinising investment for the purposes of protecting national security; and
- Published the ‘National security and infrastructure investment review’ which provided a summary of responses to the government’s consultation on long-term reform proposals.

4. Ensuring the UK has a reliable, low-cost and clean energy system

4.1 Maximise the advantages from the global shift to clean growth for UK industry, through the new Clean Growth Grand Challenge

In 2018-19, we:

- Held the first Green Great Britain Week on 15–19 October 2018, to highlight the opportunities clean growth offers and raise awareness of how business and the public can contribute to tackling climate change;
- Published ‘Clean growth: transforming heating - overview of current evidence’, which provided an overview of key issues for achieving long-term heat decarbonisation;
- Announced the first two missions under the Clean Growth Grand Challenge – to halve the energy use of new buildings by 2030, and to deliver a net zero emission carbon industrial cluster by 2040; and
- Launched the Heat Networks Investment Project (HNIP), providing up to £320 million of capital funding over three years, for heat network projects in England and Wales. It aims to increase the number of heat networks being built, deliver carbon savings and create conditions for a sustainable heat network market to develop.

| Year | Greenhouse gas emissions, MtCO2e Target for the second carbon budget from 2013-17: 2,782 | |------|------------------------------------------------------------------------------------------| | 2017 | 460 | | 2016 | 473 | | 2015 | 498 | | 2014 | 516 | | 2013 | 556 |

Source: 2017 UK greenhouse gas emissions: final figures – data tables; release schedule: annual

4.2 Ensure our energy system is reliable and secure

In 2018-19, we:

- Maintained sufficient electricity capacity to exceed our statutory reliability standard.
- Continued to make our electricity system smarter and more flexible, creating the right environment for more storage, demand side response, smart grids, and interconnection.
- Agreed with the European Commission in the draft Withdrawal Agreement how to maintain the Single Electricity Market on the island of Ireland, whilst preparing the energy system across the UK for potential ‘no deal’ EU Exit; and
- Following legal challenges to and a suspension of the Capacity Market, BEIS has worked with stakeholders, including the European Commission, to reinstate the scheme. Our Statutory Instrument to enable the T-1 auction was made on 9 April and the auction is scheduled for summer 2019.

| Year | Gas system capacity: percentage of demand that could be met if largest piece of gas infrastructure failed, in a severely cold winter | |------|-------------------------------------------------------------------------------------------------------------------------------| | 2017 | 120% | | 2016 | 127% | | 2015 | 112% |

Source: statutory security of supply report: 2018; release schedule: annual

Electricity generation from renewable resources

| Year | Percentage | |------|------------| | 2018 | 33% | | 2017 | 29% |

Source: Energy trends: renewables; release schedule: annual 4.3 Deliver affordable energy for households and businesses

In 2018-19, we:

- Published a call for evidence on ‘Helping businesses to improve the way they use energy’ and we published our response; and
- Continued to work with industry to ensure every household and small business in the country has been offered a smart meter by 2020.

| Number of smart and advanced meters operating in homes and businesses across Great Britain, millions | |---------------------------------------------------------------| | Mar 2019 | 13.8 | | Mar 2018 | 11.1 | | Mar 2017 | 6.8 | | Mar 2016 | 3.6 |

Source: statistical release and data: Smart Meters, Great Britain, quarter 4 2018; release schedule: quarterly

4.4 Manage our energy legacy safely and responsibly

In 2018-19, we:

- Updated the guidance on the decommissioning of offshore oil and gas installations and pipelines in November 2018;
- Published an updated framework for the long-term management of high activity radioactive waste to ensure safe, cost effective and environmentally sensitive decommissioning of our nuclear waste through a geological disposal facility in October 2018; and
- Brought in new emergency planning regulations in line with international best practice.

| Nuclear Decommissioning Authority targets completed or on track to complete | |---------------------------------------------------------------------------| | 2018-19 | 83% (150/181) | | 2017-18 | 81% (92/113) |

Source: Nuclear Decommissioning Authority mid-year performance report

5. Build a flexible, innovative, collaborative and business facing department

5.1 People strategy

In 2018-19, we:

- Published the BEIS Workforce Strategy for 2019 to 2021 and agreed the terms of reference for the Workforce Planning Group. 5.2 Enabling digital, data and technology In 2018-19, we:

- Embedded our IT platform, Cirrus, and launched a new intranet;

- Launched a new online reporting system for all our business as usual work and portfolio to make the process for internal reporting more efficient; and

- Ran a ‘Knowledge and Information Roadshow’, which visited five locations across the country and encouraged BEIS staff to be innovative with our new technology – ensuring good knowledge and information management supports our policy making and protecting information responsibly.

5.3 Deliver a workspace that supports and enables BEIS to deliver its objectives In 2018-19, we:

- Upgraded the CCTV in 1 Victoria Street to ensure the security of all staff;
- Improved our room booking service, with a better self-service user interface; and
- Launched a new procurement model, which is streamlined and more user-friendly, enabling better analytics.

5.4 Using resources efficiently to deliver ministers’ strategic priorities In 2018-19, we:

- Ensured that resources are appropriately allocated within the department and used effectively in the delivery of this plan and our priorities. Senior leaders have been provided with high-level oversight and governance of business planning, budgets and financial management, and performance reporting and risk monitoring; and
- Continued to meet the 5% cash management forecast accuracy target set by HM Treasury and finished joint second in the cross-government league tables with an average monthly variance of 0.49%.

### Annual People Survey score on organisational objectives and purpose index

| | Oct 2018 | Oct 2017 | Oct 2016 | |----------|----------|----------|----------| | Oct 2018 | 80% | | | | Oct 2017 | 75% | | | | Oct 2016 | 52% | | |

Source: BEIS: Civil Service people survey 2018; release schedule: annual Performance against United Nations sustainable development goals

The Sustainable Development Goals (SDGs) succeed the Millennium Development Goals (MDGs), which ended in 2015. They were developed by United Nations (UN) member states and include 17 global goals for 2016 – 2030. UK government departments are required to look within their single departmental plans to identify policies and programmes which support delivery of the SDGs.

In summer 2019, the UK will present its voluntary national review of its delivery of the SDGs to the UN. In preparing the review document, BEIS took the lead in co-ordinating the chapters for goals 7, 9 and 13. The table below provides a summary of BEIS’ delivery against the SDGs in 2018-19.

| Sustainable development goals | Progress in 2018-19 | |------------------------------|---------------------| | **Goal 1** End poverty in all its forms | **3.2 Promoting fairness in the labour market** | | BEIS delivery area | New rates for the National Living Wage were implemented in April 2018 and remain on-target to achieve the 2020 ambition to increase this to 57% of median earnings. Consultation seeking views on ethnicity pay reporting by employers closed in January 2019 and the government response is being considered. | | **Goal 5** Achieve gender equality and empower all women and girls | **3.1 Ensure businesses are run responsibly and transparently** | | BEIS delivery area | We continued to coordinate and support the Hampton-Alexander Review into FTSE women leaders. Female representation on FTSE 100 boards has risen by 2.2% since last year and on FTSE 350 boards it has risen by 2.4% since last year. | | | **3.2 Promoting fairness in the labour market** | | | Evaluation of the BEIS and Government Equality Office (GEO) £1.5 million campaign to promote parental leave in Feb-Apr 2018 shows that it achieved its targets. We have delivered on a commitment in the government’s response to the Taylor Review, and a previous concern of the Women and Equalities Select Committee. Consultation was undertaken from 25 Jan to 5 April on extending redundancy protection for pregnant women and new parents to cover the period of pregnancy and a period after, an extension of six months. It also set out more widely what the department is doing to tackle pregnancy and maternity discrimination. | | Sustainable development goals | Progress in 2018-19 | |------------------------------|---------------------| | **Goal 7**<br>Ensure access to affordable, reliable, sustainable and modern energy for all | **4.1 Maximise the advantages from the global shift to clean growth for UK industry, through the new Clean Growth Grand Challenge**<br>The Heat Networks Investment Project (HNIP) was also launched in October and aims to increase the number of heat networks being built, deliver carbon savings and help create the conditions necessary for a sustainable heat network market to develop. HNIP will provide £320 million of capital funding to gap fund heat network projects in England and Wales.<br>In December we published ‘Clean growth: transforming heating - overview of current evidence’, which provided an overview of key issues identified by the government review of options for achieving long term heat decarbonisation.<br>The Offshore Wind Sector Deal was published in March 2019 [https://www.gov.uk/government/publications/offshore-wind-sector-deal](https://www.gov.uk/government/publications/offshore-wind-sector-deal) setting out the UK’s ambition for the sector to 2030. This coincided with the UK and Taiwan signing an MoU to further develop existing collaboration on Taiwan’s offshore wind industry. | | **BEIS delivery area** | **4.3 Deliver affordable energy for households and businesses**<br>From 1 January 2019, around 11 million households who had stayed loyal to energy suppliers pay a fairer price as the government’s price cap came in to force. The cap will bring down the amount consumers have been overpaying to energy companies by £1 billion a year. The cap will remain in place until at least 2020, while energy suppliers and industry continue to work with the energy regulator Ofgem and BEIS to build an energy market that works better for all consumers.<br>We continue to ensure that people are given control over their energy bills through the provision of smart meters. There are now over 12.8 million smart and advanced meters operating across homes and businesses in Great Britain.<br>In June 2018, the Secretary of State made an announcement in the House relating to the decision not to proceed with Swansea Bay Tidal Lagoon. Extensive analysis concluded that the costs that would be incurred by consumers and taxpayers would be much higher than alternative sources of low carbon power and that the contract would not provide value for money.<br>In November 2018, we published the guidance for CfD Allocation Round 3, which will open on 29 May 2019 to eligible Pot 2 (less established) renewable technologies. | | Sustainable development goals | Progress in 2018-19 | |------------------------------|---------------------| | **Goal 8**<br>Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all | **2.1 Promote the interests of UK businesses in EU and Euratom Exit negotiations**<br>In our EU Exit negotiations, we have sought to build the strengths we set out in our Industrial Strategy and to capitalise on the opportunities before us. We have focused on ensuring that the UK is the go-to place for scientists, innovators and tech investors across the world, working to secure the right outcome for the UK research base as we exit the EU and a close association with Euratom. | | **BEIS delivery area** | **2.2 Encourage inward investment**<br>BEIS has continued to attract investment into the UK by identifying innovative solutions to emerging trends and challenges both in the UK and globally, delivering on our vision for the future economy.<br>We have ensured the UK embraces global trends that will shape our rapidly changing future and harness all the opportunities they bring. Each Grand Challenge – AI and data, clean growth, future of mobility and ageing society - represents an open invitation to business, academia and civil society to work together to ensure the UK seizes these opportunities. | | **Goal 9**<br>Build resilient infrastructure, promote inclusive and sustainable industrialisation and foster innovation | **3.2 Promote fairness in the labour market, improved working conditions and greater earning power for all**<br>We are implementing the recommendations from the Matthew Taylor review. BEIS laid secondary legislation to enact key elements of the Taylor Review package. We are now preparing a draft employment bill to take forward the outstanding elements. The Taylor Review Statutory Instruments were debated on 6 March. | | **BEIS delivery area** | **1.1 Our Industrial Strategy: building a Britain fit for the future**<br>The Industrial Strategy sets out a long-term plan to boost the productivity and earning power of people in the UK by focusing on five foundations of productivity: ideas, people, infrastructure, business environment and places. In support of these foundations, this year we published the ‘Local Industrial Strategies policy prospectus’, which sets out the objectives, policy rationale and approach to developing local strategies.<br>Business Secretary Greg Clark appointed Andy Haldane as Chair of the Industrial Strategy Council - an independent body established to assess the government’s delivery of the Industrial Strategy.<br>The Made Smarter Review made recommendations for industrial digitalisation which were included in the Industrial Strategy. Work is now progressing through delivery strategy. | 1.2 Investing in science, research and innovation

A public consultation on the new Knowledge Exchange Framework was launched in January. The framework will benchmark how well universities are doing at fostering knowledge sharing and research commercialisation.

In January, UK Research and Innovation (UKRI) launched a programme, commissioned by BEIS, to develop the first national research and innovation infrastructure roadmap, based on an understanding of existing UK infrastructure (and key international facilities in which the UK participates), future needs (research, economic and social), and resulting investment priorities.

We launched the £900 million UKRI Future Leaders Fellowship Scheme – open to the best researchers around the world.

Industrial Strategy Challenge Fund (ISCF) Wave 2 projects are now in delivery and the process to commission expressions of interest for wave 3 went live in February 2019.

1.3 Support world leading sectors

The Secretary of State launched the Nuclear Sector Deal in June 2018. The deal, worth over £200 million, will spearhead Britain’s move towards cleaner economic growth while promoting new opportunities in innovation to develop the technology and skills needed to maintain the UK’s position as one of the world’s leading nuclear nations.

Construction at Hinkley Point C is bringing economic benefit to the South West as construction continues. Spending with South West businesses has now topped £1 billion, with a further £500 million to be spent in new contracts which have already been signed. 1,700 of the current workforce live in Somerset, of which 300 are under 35 years old.

In November 2018, we announced a sector deal with the AI sector. This £1 billion deal will help to put the UK at the forefront of the AI industry. Thanks to this deal, around 1,000 government-funded AI PhDs will be created and private firms will invest £300 million in the sector. Funding will be allocated for training for 8,000 specialist computer science teachers, along with £300 million for specialist AI research.

In December 2018 we published the Second Life Sciences Sector Deal, which contains significant action to transform the prevention, diagnosis and treatment of chronic diseases by 2030. We also published the Aerospace Sector Deal in December, which positions the UK to take advantage of the global move towards hybrid-electric and electric propulsion and to exploit valuable emerging markets such as drones and urban air mobility. As reported under Goal 7, the Offshore Wind Sector Deal was published in March 2019.

1.4 Supporting businesses to start and grow

In October, we secured £31 million of new funding to deliver an £11 million SME leadership programme (2,000 individuals in year one, with aspiration for 10,000 per year by 2025) and £20 million to strengthen local networks.

The Business Basics Fund 2 was launched in January and makes available up to £2 million for trials to build evidence on how to encourage SMEs to adopt productivity boosting technology or management practice.

British Business Bank have also created a network of local managers to provide regional advice, ensuring that businesses can tie in to existing regional expertise or developing plans for specific industries.

Also, in January an Artificial Intelligence Memorandum of Understanding with Japan was announced. | Sustainable development goals | Progress in 2018-19 | |------------------------------|---------------------| | **Goal 11**<br>Make cities and human settlements inclusive, safe, resilient | **1.5 Drive growth across the country**<br>Local industrial strategies, led by Mayoral Combined Authorities or Local Enterprise Partnerships (LEPs) promote the co-ordination of local economic policy and national funding streams and establish new ways of working between national and local government, and the public and private sectors. In January, the Prime Minister chaired the second biannual Council of LEP Chairs. We published ‘Strengthened Local Enterprise Partnerships’ which sets out how government and LEPs will work together to strengthen leadership and capability, improve accountability and manage risk, and provide clarity on geography. In October we published the policy prospectus for Local Industrial Strategies, which sets out their objectives, the policy rationale and approach to their development. The second wave of six local industrial strategies were announced in July 2018: Cheshire & Warrington, Heart of the South West, Leicester & Leicestershire, North East, Tees Valley and West of England. In December, we announced that the entire country will benefit from local industrial strategies with the rest of the LEPs forming the final third wave. Plans to bring together the relevant work of HM Land Registry, Ordnance Survey, the Valuation Office Agency, the Hydrographic Office and Geological Survey through the co-ordination of the Geospatial Commission continues with the appointment in December 2018 of the Chair, Sir Andrew Dilnot, and the Deputy Chair, Nigel Clifford. | | Sustainable development goals | Progress in 2018-19 | |------------------------------|---------------------| | **Goal 12**\
Ensure sustainable consumption and production patterns | **4.2 Ensuring that our energy system is reliable and secure**\
We are working with MHCLG on a Written Ministerial Statement in response to several consultations regarding Shale, including the BEIS- run Nationally Significant Infrastructure Project (NSIP) consultation.\
The Shale Environmental Regulator Group (SERG) was launched on 5 October 2018. It brought the onshore oil and gas regulators (Environment Agency, Health and Safety Executive and the Oil and Gas Authority) together as a virtual regulatory group for the environmental aspects of shale gas exploration and production.\
The 2018 Autumn Budget announced a £315 million Industrial Energy Transformation Fund to help businesses with high energy use to cut their bills and emissions and reduce carbon use through increased energy efficiency and the use of lower carbon energy and processes. In March 2019 BEIS launched an informal consultation to help design the fund. Its focus is particularly on the benefits and barriers to industrial decarbonisation.\
Following legal challenges to and a suspension of the Capacity Market, BEIS has worked with stakeholders, including the European Commission, to reinstate the scheme. Our Statutory Instrument to enable the T-1 auction was made on 9 April and the auction is scheduled for summer 2019. | | **BEIS delivery area** | **Goal 13**\
Take urgent action to combat climate change and its impacts | **4.1 Maximise the advantages for UK industry from the global shift to clean growth through the new Clean Growth Grand Challenge, and take action on climate change**\
We have continued to support the UK Climate Change Act through the Clean Growth Strategy and continued reduction in UK emissions. The first Green Great Britain Week 15–19 October 2018 highlighted the opportunities clean growth offers the UK and raised understanding of how business and the public can contribute to tackling climate change.\
Following the report last October by the Inter-Governmental Panel on Climate Change (IPCC) on the impacts of 1.5C of warming, the UK commissioned its independent advisers, the Committee on Climate Change (CCC), to provide advice on its long-term targets. The CCC has subsequently recommended that the UK legislates for a net zero target and the government is committed to responding to this advice in a timeframe which reflects the urgency of this critical issue. | | **BEIS delivery area** | Financial review

Expenditure: How expenditure is presented

The Department’s expenditure is reported on two different bases in its Annual Report and Accounts: Statement of Comprehensive Net Expenditure and Statement of Parliamentary Supply.

Statement of Comprehensive Net Expenditure

The Statement of Comprehensive Net Expenditure (SoCNE) (page 113) includes all operating income and expenditure relating to the Departmental Group. In 2018-19, the Departmental Group’s net operating expenditure amounted to (£94.4) billion and £13.6 billion for the core Department and agencies. This expenditure is calculated following accounting standards and guidance which are explained in more detail in note 1.1 (page 123) and on a similar basis to those rules generally applied by private sector businesses.

Statement of Parliamentary Supply

Each year, Parliament approves the total funds available to the department to spend against specific limits. The Statement of Parliamentary Supply (SoPS) (page 89) presents a total expenditure for our Department Group of (£94.2) billion and compares this with the Budget presented to Parliament of (£76.7) billion. These figures are calculated in accordance with HM Treasury’s Consolidated Budgeting Guidance, which differs in several respects with the accounting basis above. It is against these limits that the department, is held accountable for its performance and the use of taxpayers’ fund. The summaries and explanations of key movements below have been prepared on this basis, except where stated otherwise.

Overview of expenditure in 2018-19

| | 2018-19 Outturn £m | 2018-19 Budget £m | 2017-18 Outturn £m | |----------------------|--------------------|-------------------|--------------------| | TME | (94,221) | (76,692) | 86,033 | | Resource DEL | 1,246 | 1,434 | 1,714 | | Capital DEL | 10,814 | 11,496 | 10,392 | | Total DEL | 12,060 | 12,930 | 12,106 | | Resource AME | (105,865) | (89,667) | 75,124 | | Capital AME | (416) | 45 | (1,197) | | Total AME | (106,281) | (89,622) | 73,927 |

1. The TME outturn is the total of Voted and Non-Voted in the Statement of Parliamentary Supply.
2. This expenditure is analysed in ‘Where we spent our money’ on pages 15 and 16. This does not represent cash spend. The Departmental Group’s performance in any year is significantly impacted by accounting ‘fair value’ movements, most significantly those included in the ‘Resource AME’ lines. These accounting adjustments are referred to as ‘non-cash’ and as such tend not to feature in conventional descriptions of departmental ‘spending’ of the kind shown in the Performance report. The largest movements are driven by changes in discount rates which have a highly material impact on the value of nuclear decommissioning and other provisions. The main categories of spend and variations in expenditure against budget and the prior year are explained in further detail below.

**Comparison of expenditure to prior years**

Our key areas of net expenditure for the last three years are shown in the table below.

| | 2018-19 £m | 2017-18 restated £m | 2016-17 restated £m | |----------------------|------------|---------------------|---------------------| | NDA | (99,592) | 73,218 | 5,082 | | Science and research | 7,511 | 6,740 | 6,374 | | Contracts for Difference | (2,971) | 3,558 | (273) | | UK Research & Innovation (Innovate UK) | 1,052 | 973 | 801 | | Coal Authority | (1,993) | 1,545 | 34 | | Green Investment Bank and Green Infrastructure Platform | 11 | 24 | 845 | | Renewable Heat Incentive | 818 | 687 | 545 | | International Climate Finance | 321 | 330 | 333 | | Post Office | 228 | 140 | 220 | | Green Investment Bank sale receipts | - | (1,621) | - | | Other | 394 | 439 | 2,304 | | **Total** | **(94,221)** | **86,033** | **16,265** |

While spending on areas such as UK Research & Innovation (Innovate UK), and International Climate Finance remains broadly consistent, there are three categories where expenditure shows a high variation in the current year. All of these are driven by accounting fair value movements to assets and liabilities, rather than in-year cash or other expenditure.

These amounts can be volatile in years when inputs underlying accounting estimates, such as discount rates, are changed. These are explained in detail in the review of the Statement of Financial Position on the following pages as follows:

**Nuclear Decommissioning Authority (NDA)**

In addition to expenditure incurred in the period, changes to the discount rate assumption have decreased the provision values and resulted in a significant negative expense. A full explanation of the reasons behind this is set out in (a) Impact on changes in discount rate page 40 and (b) Nuclear Decommissioning Authority provisions on page 42.

In the current year the change in discount rate alone accounted for a negative expense of (£96.0) billion (see also Financial Statements notes 4.3 and 19.1).

**Coal Authority**

The Authority has long-term future liabilities arising from its responsibilities arising from the ownership of abandoned coal mines. These are again highly sensitive to movements in discount rates, with an impact of (£2.6) billion in the year (see also Financial Statements notes 4.3 and 19.2). Contracts for Difference (CfD) Fair value movements of (£2.0) billion recognised in the SoCNE have been driven by changes to inflation and forecast price inputs into the valuation model, and the deferred difference recognised during the year. This is further explained in (c) Contracts for Difference on page 43 and Financial Statements note 9.

Comparison of Outturn against Budget

| | Outturn £m | Budget £m | Variances £m | % | |----------------|------------|-----------|--------------|----| | TME | (94,221) | (76,692) | 17,529 | 22.9% | | Resource DEL | 1,246 | 1,434 | 188 | 13.1% | | Capital DEL | 10,814 | 11,496 | 682 | 5.9% | | Total DEL | 12,060 | 12,930 | 870 | 6.7% | | Resource AME | (105,865) | (89,667) | 16,198 | 18.1% | | Capital AME | (416) | 45 | 461 | 1,024% | | Total AME | (106,281) | (89,622) | 16,659 | 18.6% |

The variances are the TME (Voted and Non-Voted) against Budget (Voted and Non-Voted), this is different to the presentation in the SoPS which compares Voted Expenditure against Voted Budget. Explanations for the key variances from budget are as follows, split by budget line headings from the SoPS.

Total Managed Expenditure (TME) Our TME budget was (£76.7) billion; against this the department had an outturn of (£94.2) billion. The difference of £17.5 billion resulted from lower than budgeted AME, primarily due to accounting valuation adjustments as explained below.

Resource DEL The Estimate was £1.4 billion. Outturn against the Estimate was £1.2 billion; £188 million lower than budget due to a mixture of economies across various areas and organisations. The significant components include £71 million relating to economies on Science and Research budgets, including £50 million not required for potential impairments; £56 million on Government as a Shareholder part of which relates to additional income from the Official Receiver and £21 million net relating to NDA economies.

Capital DEL The Estimate was £11.5 billion. Outturn against the Estimate was £10.8 billion, £682 million lower than budget. A significant proportion, £499 million of the underspends is attributed to limited capital calls by financial institutions under the Enterprise Financial Guarantees schemes operated by the British Business Bank on behalf of the Department. The extent of annual capital calls is not wholly predictable, as it is intrinsically linked to the financing needs of the underlying business.

Resource AME The Estimate was (£89.7) billion, and outturn was (£105.9) billion, £16.2 billion lower than budget, principally due to accounting valuation adjustments, including:

- The NDA’s nuclear decommissioning provision, where the changes in the long-term discount rates resulted in an Outturn of (£101.8) billion compared to an Estimate of (£99.0) billion. The variance of £2.8 billion, reflects the uncertainties when budgeting for the provision and represents less than 2.8% of the total change.
- The Coal Authority provision, where the change in the long-term discount rates resulted in an Outturn (£2.0) billion compared to the Estimate of £2.0 billion, a variance of £4.0 billion.
- CfD liabilities, which decreased by (£3.0) billion, from (£15.9 billion) to (£12.9 billion). This was £9.0 billion lower than the Estimate due to higher than budgeted wholesale electricity prices projections used in the updated price series to determine the year-end year fair value. This translates into lower CfD liabilities for the department.

Capital AME The £461 million underspend on capital AME is almost entirely due to lower than expected demand by Post Office Limited for its working capital funding from the core Department at the year-end. Expenditure on official development assistance

Official Development Assistance (ODA) is government aid that targets economic development in developing countries.

To maximise effectiveness, we aim to use monitoring, evaluation and learning to identify opportunities for improvement.

ODA spend is reported on a calendar year and cash basis. BEIS’ total ODA spend in 2018 was £851 million; £533 million relating to research and innovation and the rest, £318 million on climate and energy. A further breakdown of spend by sectors is presented in the table below.

ODA spend on research and innovation

The £533 million ODA spend, generated and applied knowledge and technology to address development challenges. This included work to:

- introduce parasite resistant crops;
- support sustainable land management practices in East Africa;
- improve access to maternal health care;
- inform policymaking on drugs policy in Columbia;
- combat antimicrobial resistance; and
- improve access to affordable, clean energy.

ODA spend on climate and energy

Of the £318 million ODA spend, £308 million was invested in international climate finance. This included:

- £35.5 million in the ‘Green Climate Fund’, the largest joint climate fund that supports the Paris Agreement;
- £68 million to boost the uptake of greener construction practices;
- £36 million for energy efficiency and renewable energy projects in India, South Africa and East Africa;
- £19 million to support coal phase out for developing countries with high current or future coal use.

Provisional expenditure by DAC 5 sector code

| Sector code | Sector | 2018 £m | |-------------|---------------------------------------------|---------| | 111 | Education, Level Unspecified | 53.8 | | 113 | Secondary Education | 1.5 | | 114 | Post-Secondary Education | 7.1 | | 121 | Health, General | 102.3 | | 122 | Basic Health | 0.2 | | 123 | Non-communicable diseases | 0.1 | | 140 | Water and supply sanitation | 0.1 | | 151 | Government & Civil Society-general | 8.5 | | 160 | Other Social Infrastructure & Services | 0.6 | | 210 | Transport & Storage | 3.3 | | 230 | Energy | 3.8 | | 231 | Energy Policy | 52.5 | | 232 | Energy generation, renewable sources | 36.7 | | 233 | Energy generation, non-renewable sources | 0.3 | | 250 | Business & Other Services | 0.1 | | 311 | Agriculture | 73.4 | | 312 | Forestry | 0.0 | | 313 | Fishing | 0.8 | | 321 | Industry | 19.3 | | 410 | General Environment Protection | 90.9 | | 430 | Other Multisector | 269.2 | | 510 | General budget support | 8.8 | | 910 | Administrative Costs of Donors | 5.8 | | 998 | Unallocated/unspecified | 112.0 | | **Total** | | **851.1**|

Notes

1. The BEIS ODA spend for 2018 provided are provisional. The final official statistics will be published by the Department for International Development in November 2019.
2. The provisional official statistics for 2018 published by DFID may be found in the publication ‘Provisional UK Official Development Assistance as a Proportion of Gross National Income’ [https://www.gov.uk/government/statistics/statistics-on-international-development-provisional-uk-aid-spend-2018](https://www.gov.uk/government/statistics/statistics-on-international-development-provisional-uk-aid-spend-2018)
3. Sector codes used by the OECD Development Assistance Committee (DAC): [http://www.oecd.org/dac/stats/purposecodessectorclassification.htm](http://www.oecd.org/dac/stats/purposecodessectorclassification.htm) Consolidated statement of financial position

The Department remains in a net liability position, however, there has been a significant decrease in the Department’s net liability position from the prior year. This is driven by changes to discount rates and the impact of those changes on nuclear decommissioning provisions. The most significant assumptions and balance underlying the Statement of Financial Position are:

(a) Impact of changes in discount rates

| Category | 2018-19 | 2017-18 | Rationale | |-----------------------------------------------|---------|---------|---------------------------------------------------------------------------| | Nuclear decommissioning provisions | | | | | Short term < 2 years | -1.22% | -2.42% | Set by HM Treasury Public Expenditure System (PES) Secretariat 7 December 2018 | | Short term 2 – 5 years | -1.31% | -2.42% | | | Medium-term 6 -10 years | -0.94% | -1.85% | | | Long-term > 10 years | -0.11% | -1.56% | | | CfD financial instruments | | | | | Real rate (as contracts are in real terms) | +0.70% | +0.70% | As above | | Coal pensions | | | | | Real rate + 3% RPI (as contractual figures are in nominal values) | +3.70% | +3.70% | As above: financial instruments discount rate (non-indexed) | | Repayable Launch Investments | | | | | Higher of the implicit rate or the financial instrument’s rate | +3.50% | +3.50% | Risk-free rate for government investment appraisal set by HM Treasury Green Book, adjusted for inflation | | | + RPI 2.60% | + RPI 2.45% | |

Notes

1. HM Treasury provided Nominal and Inflation rates for discounting provisions for 2018-19, rather than Real rates as they have in prior years. The values above are real rates for 2018-19 and 2017-18 taking into account the nominal and inflation rates for 2018-19. Further details of the nominal and inflation rates are given in the Departmental Group Accounting Policies note 1.23

Some of our priorities carry obligations that are very long-term and will involve expenditure over decades to come. The eventual costs of these long-term projects are uncertain but we are required to present a single number in the annual accounts. This single number is based on our best estimate of costs, technology and other relevant factors, adjusted to reflect the changing value of money over time.

The worth of the Department’s future cash flows are calculated at present value in accordance with accounting standards. This present value reflects the time value of money. The accounts use a number of different discount rates depending on the nature of the transaction and the regulation applicable.

In the past, the time value of money has usually been positive which means money could be invested in the present for a return in the future that would exceed the rate of inflation – this is known as a positive ‘real’ return. Government bonds are seen as a low risk form of investments. Usually, therefore, government bonds bring a lower rate of return than other investments. As bonds pay a fixed cash amount when they mature, the higher the price paid for the bonds now, the lower the rate of return is considered to be. Following the global financial crisis, demand for lower–risk investments increased, particularly government bonds. As a result, the price of government bonds rose. This has resulted in government bonds providing a negative ‘real’ return. The long-term discount rate has been negative since 2015. In 2018-19, the long-term discount rate remains negative but not to as significant extent as in prior years. When negative discount rates are applied to the Department’s long-term obligations, this has the effect of significantly increasing the reported value of the liabilities, however, with the decrease of the negative discount rate this has resulted in a decrease in the report value of the liabilities this year. Even when the cash the Department expects to pay has not changed substantially, year on year. But not all rates are negative. For investment appraisal government continues to use positive rates, to ensure that projects are correctly appraised and generate future benefits. Our accounts use positive discount rates to determine the present value of future income generated from assets and investments. When positive rates have been used to discount future cash receipts, then the present value of them is lower than the cash the department will receive. The following tables set out the specific material balances in our accounts that have been discounted. The impact of the discounting can be assessed by comparing the discounted value with the undiscounted value.

Impact on assets Assets have been discounted at positive rates. For financial instruments we are required to use the prescribed HM Treasury discount rate of 0.7% real and 3.7% nominal, or the rate of return implicit in the contract if higher. For the repayable launch investments, we assessed the implicit rate to be 3.5% plus RPI; 2018-19: RPI was 2.60% (2017-18: RPI was 2.45%) giving an implicit rate of 6.10% (2017-18: 5.95%).

| Category | 2018-19 Discounted assets | 2018-19 Undiscounted assets | 2018-19 Impact of discounting | 2017-18 Discounted assets | 2017-18 Undiscounted assets | 2017-18 Impact of discounting | |---------------------------|---------------------------|-----------------------------|-------------------------------|---------------------------|-----------------------------|-------------------------------| | Repayable launch investments | 1,058 | 1,348 | (290) | 1,047 | 1,540 | (493) | | Coal pensions | 920 | 1,058 | (138) | 1,033 | 1,207 | (174) |

Impact on provisions Both the Nuclear Decommissioning Authority and the Coal Authority have long-term provisions relating to the expected future cost of managing the energy legacy. The negative discount rates have increased the present value of future cash flows significantly.

| Category | 2018-19 Discounted liability | 2018-19 Undiscounted liability | 2018-19 Impact of discounting | 2017-18 Discounted liability | 2017-18 Undiscounted liability | 2017-18 Impact of discounting | |---------------------------|-----------------------------|-----------------------------|-------------------------------|---------------------------|-----------------------------|-------------------------------| | NDA nuclear provision | 129,709 | 123,311 | 6,398 | 233,282 | 120,165 | 113,117 | | Coal Authority provision | 2,299 | 2,174 | 125 | 4,328 | 1,902 | 2,426 |

Impact on financial instruments The fair value of the Contracts for Difference (CfD) obligation disclosed in the accounts is adjusted using the 0.7% real term discount rate. Each year, the fair value of the CfD is reassessed to reflect changes in the expected cash payments that will be made over the life of the contracts, and then the updated expected cash payments are discounted.

| Category | 2018-19 Discounted liability | 2018-19 Undiscounted liability | 2018-19 Impact of discounting | 2017-18 Discounted liability | 2017-18 Undiscounted liability | 2017-18 Impact of discounting | |----------|-----------------------------|-----------------------------|-------------------------------|---------------------------|-----------------------------|-------------------------------| | CfD liability | 35,249 | 37,176 | (1,927) | 39,201 | 41,603 | (2,402) | (b) Nuclear Decommissioning Authority provisions

NDA is responsible for 17 nuclear licensed sites across the country, with a range of facilities including former nuclear power stations, research facilities and nuclear fuel fabrication and reprocessing facilities. Some of these sites date from the earliest days of nuclear power. Unlike modern nuclear facilities, decommissioning of these sites was not built into plans or designs.

Decommissioning of sites will take many decades. In part, this is because plans often include periods of ‘care and maintenance’, where sites are made safe and put into an interim state, allowing residual amounts of radioactive material to decay over time. By doing this, the final stages of decommissioning will be easier and safer to complete.

NDA’s best estimate of the future costs of the estate over the next 100+ years on an undiscounted basis is £123.3 billion.

This figure is based on dealing with an assumed inventory of materials with varied radiological characteristics, and using the extant strategy for retrieval and disposal of the resulting materials over several decades. Each of these elements is uncertain in its own right – the cost of developing the necessary technology and plants to deal with these activities is also uncertain. The quality of the forecast becomes less certain the longer the projection.

NDA has reviewed the methodologies used in the calculation, taking into account HM Treasury Green Book guidance and the need to remove optimism bias. Projects like these could typically have a range of estimates from -50% to +300%. In light of uncertainties in the estimate, NDA considers it prudent to present a credible range of outcomes. The range presented for the current year is for undiscounted costs of £99 billion to £232 billion. c) Contracts for Difference

CfDs are designed to incentivise investment in a mix of low carbon electricity generation technologies which will help the UK meet its renewable and decarbonisation targets. CfDs do this by agreeing with a generator a strike price for electricity supplied, thereby providing certainty needed for private investment, while protecting consumers from having to continue to pay higher support costs when electricity prices are high. The support payments paid (or repaid) in future will be calculated from the difference between the strike price and the market reference price prevailing at the time.

Low Carbon Contracts Company (LCCC)

Difference payments under the CfDs are funded through a levy paid by licensed energy suppliers. The LCCC is the company established by Government to collect this levy, manage the CfDs and pay or receive the contracted difference payments. The LCCC is managing all 54 recognised CfD contracts.

Accounting for fair value (FV)

In order to comply with the relevant accounting standards, the Department is required to estimate the ‘fair value’ of future CfD payments. Difference payments under CfDs can be positive (an asset) or negative (a liability) and are currently recognised as a liability. The matching asset arising from the statutory obligation on suppliers is not recognised under accounting standards. The CfD liability figure is calculated using a model that forecasts the rate of generation, expected demand for electricity and electricity prices over the term of the contract. The figures in the financial statements represent management’s best current estimate within a range of scenarios and will be subject to change over time.

In accordance with accounting standards the initial fair value of any contract is deferred i.e. not recognised in the accounts. The total deferred fair value of CfDs disclosed in the accounts was £22.3 billion on 31 March 2019.

The Department recognises all subsequent movements of fair value on CfD contract recognised in the accounts, whose cumulative value was £35.2 billion by 31 March 2019, through the Statement of Comprehensive Net Expenditure; and recognises a liability, which was £12.9 billion as at 31 March 2019, on the Statement of Financial Position. The movements in year are presented in the tables below. Further details on the CfDs can be found in note 9 on pages 152 to 160.

Movements in fair value of CfDs recognised in the Accounts

| | 2018-19 £ bn | 2017-18 £ bn | |----------------------|--------------|--------------| | 1 April | 39.2 | 31.4 | | Changes in FV on exiting recognised contracts | (2.7) | 3.7 | | Additions | - | 4.6 | | Release of CfD liability relating to terminated contracts | (0.3) | - | | Payments made to generators | (1.0) | (0.5) | | 31 March | 35.2 | 39.2 |

Notes

1. The tables exclude the fair value of Hinkley Point C, which is not recognised in the accounts as explained below.

Effect on the Statement of Financial Position of CfD’s recognised in the Accounts

| | 2018-19 £ bn | 2017-18 £ bn | |----------------------|--------------|--------------| | 1 April | 15.9 | 12.3 | | Changes in FV on exiting recognised contracts | (2.7) | 3.7 | | Release of CfD liability relating to terminated contracts | (0.0) | - | | Payments made to generators | (1.0) | (0.5) | | Deferred differences recognised | 0.7 | 0.4 | | 31 March | 12.9 | 15.9 |

Notes

1. The tables exclude the fair value of Hinkley Point C, which is not recognised in the accounts as explained below. Effect on the Statement of Comprehensive Net Expenditure of CfDs recognised in the Accounts

| | 31 March 2019 | 31 March 2018 | |--------------------------------|---------------|---------------| | **Contracts for difference derivatives** | (2.0) | 4.1 | | Comprising: | | | | Changes in FV on existing recognised contracts | (2.7) | 3.7 | | Release of CfD liability relating to terminated contracts | (0.0) | - | | Deferred differences recognised | 0.7 | 0.4 | | **Contract for difference derivatives total** | (2.0) | 4.1 |

Hinkley Point C The CfD contract for Hinkley Point C (HPC) was signed in September 2016, but it has not been recognised in the accounts for reasons explained in note 9 to the accounts. The Department’s best estimate of fair value at 31 March 2019 was £30.3 billion.

Our charging policy: Our core Department provides only a limited number of services for which it charges fees. Any such fees are set to comply with the cost allocation and charging requirements set out in HM Treasury and Office of Public Sector Information guidance.

The Insolvency Service sets its fees to recover costs. It has a range of fees covering three areas:

- case administration, where fees reflect the average costs of administering bankruptcy cases and compulsory company liquidation cases and also the average cost of completing debt relief orders;
- insolvency practitioner regulations, where fees include the cost of authorising and monitoring insolvency practitioners and registering individual voluntary arrangements;
- estate accounting, where fees reflect the cost of financial transactions on insolvency cases using the Insolvency Service account.

Details of charging polices relating to partner organisations may be found in their respective published accounts. Sustainability report

We are committed to sustainability in the way we make policy and procure goods and services. We are also committed to environmental sustainability, and as part of the Greening Government Commitments, we report on our greenhouse gas emissions, water use, paper use and waste.

Environmental sustainability

Greenhouse gas emissions Our BEIS Green Guardians network supports BEIS in monitoring our energy consumption and in plans to introduce further energy saving measures.

Waste We installed bins for recycling a variety of materials and plan to eradicate the majority of single-use consumer plastics.

Water and paper We recently received accreditation to ISO 50001 (energy management) and ISO14001 (environmental management). We will be reviewed annually against these standards and we will seek continuous improvement in both. We have a closed paper cycle whereby all paper is recycled for reuse.

Food and catering We are committed to sustainable, and where possible, British food products. We are working to eliminate, the majority of single-use consumer plastics from our catering provision.

Sustainable construction We have had no new builds in the last year. We work with the Government Property Agency who hold our leases to ensure any construction work prioritises sustainability and reaches the government’s buying standard.

Biodiversity and the natural environment We have no significant impact on biodiversity. However, site license companies managing NDA nuclear sites are contractually required to have suitable biodiversity action plans in place.

Sustainable procurement

Suppliers We used the Crown Commercial Service framework to procure our goods and services. The procurement service works with its partners to ensure sustainability goals are achieved.

Engagement with small and medium enterprises We are committed to meeting the government target of 33% direct procurement and through the supply chain by the end of 2022.

In 2018-19, the share of procurement made directly with SMEs was 31.8%, of which the core Department’s share was 24.1%. In 2017-18, the share of the procurement made directly with SMEs was 28.4%, of which the core Department share was 20.8%.

Prompt payments We have a policy to pay 80% of undisputed invoices within five days with the remainder paid in 30 days. In 2018-19, the core Department paid 94.8% of undisputed invoices within five days and 99.3% within 30 days.

The most common reasons for invoices to be put on hold are due amounts on the purchase order not matching receipts, or a supplier has had a change of address which does not match the invoice. These issues need to be checked before payments are made.

3 Entities include the core Department and all commercially active Arm’s Length Bodies of BEIS: 1) core Department, 2) ACAS, 3) Civil Nuclear Constabulary, 4) Coal Authority, 5) Committee on Climate Change, 6) Companies House, 7) Intellectual Property Office, 8) Insolvency Service, 9) Land Registry, 10) Low Carbon Contracts Company, 11) Met Office, 12) National Nuclear Laboratory, 13) National Physical Laboratory, 14) Oil & Gas Authority, 15) Ordnance Survey, 16) UK Atomic Energy Authority, 17) UK Research and Innovation, 18) UK Space Agency, 19) UK Shared Business Services. Sustainability in policy development

Rural proofing Our Industrial Strategy policy outlines government plans to increase productivity and economic growth – this is across every part of the country. It covers rural issues, including shortage of work premises, slow internet connections and a lack of knowledge transfer between business communities spread across wide areas. Rural proofing is built into our impact assessments.

Climate change adaptation Climate change adaptation refers to adapting to the consequences of climate change. We contribute to the cross-government National Adaptation Plan, published every five years. It sets out how risks of extreme weather events will be managed (e.g. flood resilience measures) for communities, the built environment, businesses and local government.

Progress on Greening Government Commitments

| Targets by 2019-20, compared to 2009-10 baseline | Progress in 2018-19 | |-------------------------------------------------|---------------------| | Total greenhouse gas emissions: reduce by 66%¹ | ↓ 64.75% | | Domestic flights: reduce by 30% | ↓ 44.26% | | Volume of water used: reduce generally | ↓ 59.11% | | Reams of paper procured: reduce by 50% | ↓ 83.83% | | Total non-hazardous waste generated: reduce generally | ↓ 71.66% | | Waste to landfill: reduce proportion to 10% | 14.04% in 2018-19 | | Waste recycled/reused: increase generally | ↑ 6.04% |

Notes

1. 66% is the new 2020 target for BEIS. The original 2020 target of 40% has been exceeded; in 2016-17, we had achieved 51% reduction. Further information is available at the Greening Government Commitments page on GOV.UK.

### Greening Government Commitments data

| Greenhouse gas emissions | 2018-19 | 2017-18 | 2016-17 | Baseline 2009-10 | |--------------------------|---------|---------|---------|------------------| | Emissions (tonnes of CO₂e) | | | | | | Emissions scope 1² | 6,644 | 8,007 | 6,109 | 17,837 | | Emissions scope 2³ and 3⁴ | 16,037 | 22,325 | 25,480 | 46,507 | | Emissions total | 22,681 | 30,332 | 31,589 | 64,344 | | Related energy consumption (kWh) | | | | | | Electricity: non-renewable | 28,660,707 | 29,221,350 | 30,360,293 | 45,323,891 | | Electricity: renewable | 15,595,594 | 17,428,973 | 19,540,688 | 38,675,792 | | Gas | 20,347,275 | 36,185,503 | 29,071,359 | 62,905,227 | | District heating | 113,953 | 149,220 | 124,776 | - | | Other heat | 9,210,230 | 6,824,394 | 2,664,381 | 9,865,113 | | Total energy consumption | 73,927,759 | 89,809,439 | 81,761,497 | 156,770,023 | | Related expenditure (£k) | | | | | | Expenditure on energy | 7,460 | 6,755 | 6,467 | n/a | | Expenditure on CRC licence| 298 | 598 | 497 | n/a | | Expenditure on official business travel⁵ | 13,257 | 7,559 | 11,660 | n/a | | Total expenditure on energy and business travel | 21,015 | 14,912 | 18,624 | n/a | | Domestic business travel flights | | | | | | Total number of flights | 4,503 | 2,689 | 5,125 | 8,078 | | Waste generated (tonnes) | | | | | | Total waste generated | 2,137 | 2,468 | 2,159 | 7,541 | | non-hazardous waste: to landfill | 300 | 289 | 197 | 2,986 | | non-hazardous waste: reused/recycled | 1,293 | 1,779 | 1,775 | 4,107 | | non-hazardous waste: composted/biodigestion | 79 | 49 | 60 | 25 | | ICT waste reused | - | - | - | 7 | | ICT waste recycled | 30 | 11 | 51 | 2 | | incinerated energy from waste | 536 | 389 | 181 | 448 | | reams of paper procured | 71,335 | 61,825 | 97,893 | 441,134 | | Total disposal cost (£k) | 404 | 468 | 432 | n/a | | Water consumption | | | | | | Water consumption (m³) | 115,907 | 110,457 | 126,468 | 283,495 | | Water supply and sewage costs (£k) | 489 | 325 | 329 | n/a |

**Notes**

1. Entities include: i. BEIS core Department, ii. Companies House, iii. Intellectual Property Office, iv. Land Registry, v. Natural Environment Research Council, vi. Nuclear Decommissioning Authority, and vii. Ordnance Survey
2. Scope 1: direct emissions from sources owned or controlled
3. Scope 2: indirect emissions from consumption of purchased electricity or sources of energy generated upstream
4. Scope 3: other indirect emissions occurring as a consequence of BEIS’ operations, but not directly owned or controlled by BEIS
5. Travel costs for the Land Registry have not been included Other required performance reporting

Anti-bribery and anti-corruption

No cases of bribery or corruption were identified within BEIS this year. We have made good progress, working with other departments and law enforcement agencies to identify and implement best practice. We will continue to emphasise the importance of effective anti-bribery and corruption practices both in the UK and in any overseas’ operations we fund. BEIS policies and controls are being refreshed to include more up to date and relevant advice to identify and prevent potential instances of bribery, corruption and non-compliance as well as clearly defining appropriate reporting routes. These will be made available to all BEIS staff and our suppliers.

Public correspondence

We aim to respond to 80% of our correspondence within 15 working days.

In 2018-19, we received 9,406 written enquiries from MPs, Peers and members of the public. We responded to 76% of cases within 15 working days. The table above shows our monthly performance.

Complaints to the Parliamentary Ombudsman

The data in the table to the left has been obtained from the Parliamentary Ombudsman Annual Report for 2017-18, the latest available. The Ombudsman only accepts complaints that have been through our complaints process. We aim to answer all formal complaints via complaints@beis.gov.uk within 20 working days. Only a small percentage of complaints we receive are escalated to the Ombudsman. Advertising campaigns

We ran three major advertising campaigns to support the ‘A Fair Workplace’ initiative.

National minimum wage and living wage The National Living and Minimum Wage campaign launched in April and ran for six months. The campaign was designed to raise awareness of the wage increases from 1 April 2018, to encourage workers to check their pay and secure the increase from employers. The £1.3 million campaign included advertising on radio, poster sites and social media, and drove more than 600,000 visits to the campaign website. It also urged those persistently underpaid to complain to HMRC to investigate employers.

Shared parental leave BEIS, together with the Gender Equalities Office launched phase 2 of the Shared Parental Leave campaign in February 2019. It was designed to spark conversations between parents about sharing parental leave and encourage employers to promote it in the workplace. The £0.25 million campaign was aimed at expectant mums in England, Scotland and Wales. It included online advertising through social media and targeted titles, supported with in-house PR to national and consumer media. The campaign website (www.gov.uk/sharetheleave) featured advice and case studies of parents who have already taken shared parental leave. The campaign is expected to drive around 80,000 visits to its website.

Holiday Pay We launched a new campaign in February 2019 to raise awareness of worker entitlement to Holiday Pay. The £1 million campaign featured advertising on bus stop poster sites and shopping malls, as well as on social media sites including Facebook. The campaign was designed to encourage workers to check with their boss to make sure they received holiday pay. All advertising drove more than 500,000 visits to information pages on GOV.UK.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019 The National Living Wage is an integral component of the ‘People’ foundation of the Industrial Strategy which highlights the potential to drive up wages and productivity within traditionally lower-paying sectors. Statement of Accounting Officer’s responsibilities

Under the Government Resources and Accounts Act 2000 (the GRAA), HM Treasury has directed the Department for Business, Energy and Industrial Strategy to prepare, for each financial year, consolidated resource accounts detailing resources acquired, held or disposed of, and the use of resources during the year by the department (inclusive of its executive agencies), sponsored non-departmental public bodies and other arm’s-length public bodies. These bodies are designated by order made under the GRAA by Statutory Instrument 2018 no 1335 (together known as the ‘Departmental Group’, consisting of the core Department and sponsored bodies listed at note 28 to the accounts). The accounts are prepared on an accruals basis and must give a true and fair view of the state of affairs of the department and Departmental Group, and the net resource outturn, application of resources, changes in taxpayers’ equity and cash flows of the Departmental Group for the financial year.

In preparing the accounts, the Accounting Officer of the department is required to comply with the requirements of Government Financial Reporting Manual and in particular to:

- observe the Accounts Direction issued by the Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;
- ensure that the department has in place appropriate and reliable systems and procedures to carry out the consolidation process;
- make judgements and estimates on a reasonable basis, including those judgements involved in consolidating the accounting information provided by non-departmental and other arm’s-length public bodies;
- state whether applicable accounting standards as set out in the Government Financial Reporting Manual have been followed, and disclose and explain any material departures in the accounts;
- prepare the accounts on a going concern basis;
- confirm that the Annual Report and Accounts as a whole is fair, balanced and understandable and take personal responsibility for the Annual Report and Accounts and the judgements required for determining that it is fair, balanced and understandable.

HM Treasury has appointed the Permanent Head of the department as Accounting Officer. The Accounting Officer has also appointed the Chief Executives or equivalents of its sponsored non-departmental and other arm’s length public bodies as Accounting Officers of those bodies.

The Accounting Officer of the department is responsible for ensuring appropriate systems and controls are in place to ensure any grants the department makes to its sponsored bodies are applied for the purposes intended and that such expenditure and the other income and expenditure of the sponsored bodies are properly accounted for, for the purposes of consolidation within the resource accounts. Under their terms of appointment, the Accounting Officers of the sponsored bodies are accountable for the use, including the regularity and propriety, of the grants received and the other income and expenditure of the sponsored bodies.

The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances for which the Accounting Officer is answerable, for keeping proper records and for safeguarding the assets of the department or non-departmental or other arm’s length public body for which the Accounting Officer is responsible, are set out in Managing Public Money published by HM Treasury.

Accounting Officer’s confirmation

I have taken all the steps I ought to have taken to make myself aware of any relevant audit information and to establish that the department’s auditors are aware of that information. So far as I am aware, there is no relevant audit information of which the auditors are unaware.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019 Directors’ report: our leadership team

Our ministers

The Rt Hon Greg Clark MP Secretary of State for Business, Energy and Industrial Strategy

The Rt Hon Claire Perry MP Minister of State for Energy and Clean Growth

The Rt Hon Lord Henley Parliamentary Under Secretary of State

Chris Skidmore MP Minister of State for Universities, Science, Research and Innovation

Kelly Tolhurst MP From 19 July 2018 Parliamentary Under Secretary of State, Minister for Small Business, Consumers and Corporate Responsibility

Andrew Stephenson MP From 4 Apr 2019 Parliamentary Under Secretary of State, Minister for Business and Industry

Jack Berry MP From 7 Jun 2019 Parliamentary Under Secretary, Minister for the Northern Powerhouse and Local Growth

Our management: executive directors

Alex Chisholm Permanent Secretary

Sam Beckett

Nick Chism from 1 Jun 2018

Julian Critchlow from 14 May 2018

Caleb Deeks

Sarah Harrison

Professor John Loughhead

Jaee Samant from 1 Sep 2018

Tom Taylor

Doug Watkins

Joanna Whittington from 8 Oct 2018

Gavin Lambert from 15 Apr 2019

Sam Lister from 15 Apr 2019 Our management: non-executive directors

Archie Norman Board member

Nigel Boardman from 25 Jun 2018 Board member, Audit and Risk Assurance Committee

Stephen Carter Board member

Claire Davies Audit and Risk Assurance Committee

Louise Fisher From 19 Feb 2019 Nominations and Governance Committee

Bryan Ingleby Audit and Risk Assurance Committee

Myriam Madden Audit and Risk Assurance Committee

Dame Carolyn McCall Board member

Leena Nair from 25 Jun 2018 Board member, Nominations and Governance Committee

Kathryn Parsons Board member

Stuart Quickenden Board member, Audit and Risk Assurance Committee

Adrian Kamellard from 10 Apr 2019 Audit and Risk Assurance Committee

Elaine Clements from 10 Apr 2019 Audit and Risk Assurance Committee

Catherine Pridham from 20 Feb 2019 Project and Investment Committee

Leavers up to the reporting date

Those who left ministerial, executive and non-executive positions during the year

Professor Dame Anne Dowling to 31 May 2018 Non-executive: Board member, Nominations and Governance Committee

Charles Randell to 30 Jun 2018 Non-executive: Board member, Audit and Risk Assurance Committee

Andrew Griffiths MP to 14 Jul 2018 Minister

Jeremy Pocklington to 27 Aug 2018 Executive director

Helen Shirley-Quirk from 29 Aug 2018 to 7 Oct 2018 Acting Director General/ Executive Director

Rachel Campbell to 31 Oct 2018 Non-executive: Nominations and Governance Committee

Sam Gyimah MP to 30 Nov 2018 Minister

Lucy Shannon to 31 Dec 2018 Non-executive: Audit and Risk Assurance Committee

Richard Harrington MP to 25 Mar 2019 Minister

Gareth Davies to 3 May 2019 Executive director Governance statement

Report of the lead non-executive director

The BEIS Departmental Board (the Board) has prioritised embedding the Industrial Strategy across all its work this year. The department marked the first year of the Industrial Strategy in December 2018 and used this milestone as impetus to develop a challenging work programme, where I, and the Board, pushed BEIS senior management to be innovative in their interactions with business by:

- championing joint working in policy formation and avoiding preconceptions;
- establishing a Shadow Executive Committee and ensuring that the Co-Chairs have a route to the Board through the Lead Non-Executive and Permanent Secretary has enhanced the Board’s access to wider employee views;
- setting the requirement for an annual board event outside of the standard three-hour department based meeting, enabling members to engage with local representatives and gain first-hand knowledge of key regional industry issues; and
- challenging internal recruitment strategies to ensure that we encourage inward movement of individuals with relevant industry experience.

During the year the Board held wide ranging discussions on subjects of key importance to business, such as EU Exit, labour markets and skills; audit and regulation; and actions to secure our energy markets, including new technologies, innovation and reducing carbon emissions. We held a successful interactive session on the Industrial Strategy’s Grand Challenges attended by the BEIS Departmental Board, Whitehall officials and business representatives.

The positive input of our new non-executive board members, Nigel Boardman and Leena Nair, with their considerable professional experience, has been felt in board discussions and at their respective committees. Throughout the last year, the commitment, diligence and fortitude of ministers and officials in managing the challenges and uncertainty as we prioritised EU Exit work, alongside other key priorities, has demonstrated that we continue to be one of the most effective departments in government.

Looking ahead

While the 2018 People Survey results for BEIS showed encouraging progress in staff engagement the BEIS Departmental Board are not complacent. We will continue to challenge BEIS to keep improving by implementing the “Shaping our Future” programme to ensure a more inclusive, highly professional and high-performing department, modelling the progressive practices we want to see across the whole economy.

Departmental Board members and I will use our position to encourage ministers and officials to use the Industrial Strategy to create an environment in the UK where business, consumers and workers continue to develop, innovate and lead. Our board structure

- **Nominations and Governance Committee**

  - Senior remuneration and appointments

- **Departmental Board**

  - Provides direction on strategy, performance and risk management

- **Audit and Risk Assurance Committee**

  - Quality of audit and risk control functions

- **Executive Committee**

  - Implements strategy and ensures the effective management of BEIS, including EU Exit Programme business

- **People and Operations Committee**

  - Effective management of human resources, estates and digital

- **Performance, Finance and Risk Committee**

  - Monitoring frameworks for BEIS performance against targets, budgets and risks

- **Projects and Investment Committee**

  - Assurance of key investment proposals and projects

- **Shadow People and Operations Committee**

  - Staff advisory body

- **PFR Challenge Panel**

  - Deep dive on Departmental Performance and Risks

- **PIC Keyholder Panel**

  - Assurance and Investment Proposals

Register of interests

All Board members are required to declare any personal or business interests which may influence their judgement in discharging their obligations, or which may be perceived to do so by a reasonable member of the public. These interests include, without limitation, personal direct and indirect pecuniary interests and any such interests of close family members or of people living in the same household as the Board member.

BEIS collects this information annually. We also ask Board members to inform the department on any changes in their circumstances which could be a conflict of interest or perceived as one. Where a Board member has a specific conflict of interest, additional mitigations are put in place. Typically, this means not taking part in related discussions at the Board or other meetings. Biographies of our Board members are available at [https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy](https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy)

Two conflicts of interest were raised this year and were managed in line with the relevant procedures. Departmental Board and its committees

Our Departmental Board held six meetings in 2018-19. The table below summarises discussions governance and risk and operations.

| Discussion | Action | Progress | |------------|--------|----------| | **Industrial Strategy** | The Board challenged policy makers to be innovative, to demonstrate how they are engaging with business and introducing this outlook in embedding the industrial Strategy. | BEIS made changes to our organisational structure to strengthen our delivery of the Industrial Strategy. | | **EU Exit** | The Board held discussions on departmental progress in preparing for EU Exit, focused on the labour market, and BEIS’s no deal planning. | The Board commissioned business relate items and sector analysis to discuss at future board meetings. | | **Independent review of the Financial Reporting Council** | Following publication of an independent report, the Board discussed the implications and connectivity of the reviews with others into the UK audit market. | The Board has directed the relevant Director General to review the recommendations and develop a plan to formally address them. | | **UK Research and Innovation (UKRI)** | The Board considered the plans, structure and priorities for UKRI’s first year of operation. | UKRI are expected to provide an update at a future Board meeting. | | **Energy Strategy** | The Board discussed several topics on the energy strategy. The Secretary of State responded to Dieter Helm’s Cost of Energy Review. | A revised Energy Strategy is due in 2019. | | **Review of Apprenticeship Scheme** | The Board commissioned analysis of the scheme, which included contributions from industry and the Department for Education (DfE). | The Board agreed joint policy working with DfE to address the issues raised. | | **Oil and Gas Authority** | The Board requested the CEO to discuss in detail how the authority was set up, resourcing, and how it engaged with industry to develop its regulatory framework. | A series of lessons learned summaries were developed and shared. | | **Objectives and priorities for the department** | The Board provided challenge on BEIS’ forward work programme for 2019 and continued setting priorities to strengthen the department’s governance overall. | The work programme has been amended based on the steer from the Board. | | **Single Departmental Plan (SDP)** | The Board’s discussion on BEIS objectives and priorities has supported the development of the SDP. | The Lead Non-Executive Board Member fed into the development of the SDP. | | **Departmental risk appetite and risk management** | The Board endorsed the approach of the incoming Chair of the Audit and Risk Committee and implemented changes to strengthen how BEIS manages its risks and the risks of arm’s length bodies. | The Board is expected to review to the risk appetite statement in 2019. | | **People Survey** | The Board considered results from the 2018 People Survey, discussed options around staff attrition rates and requested plans for raising engagement scores for middle management. | The Board endorsed the “Shaping our Future” programme. | | **Transformation programme** | The Board challenged BEIS to consider how it needs to engage business and integrate industry knowledge into the organisation. | BEIS has identified key stakeholders, implemented communication strategies and partnership working. | Nominations and Governance Committee

The success of any organisation is based on valuing its people and having an effective strategy for personal and career development. Nominations and Governance committee has focused on:

- systems to identify and develop talented senior civil servants;
- plans for orderly succession of appointments to the Board, Director General and Director roles;
- bringing in a new performance management process for grades across BEIS following an extensive staff consultation exercise;
- attraction and retention strategies for staff across BEIS; and
- the “Shaping our Future” programme to ensure BEIS is an inclusive, professional and high performing department.

Audit and Risk Assurance Committee (ARAC)

ARAC ensures we have a clear grip of our management of risk and finance. ARAC has focused on:

- the overall control environment including risk and governance arrangements;
- shaping the approach to a BEIS Risk Appetite Statement;
- improving the risk management framework, and testing embedding the framework within Directorates in BEIS;
- assuring cyber and information security and counter fraud and whistleblowing practices; and
- building stronger relationship with Partners Organisations.

Executive Committee (ExCo)

ExCo ensures the effective management of BEIS by looking at our key strategic priorities, workstreams and programmes. In the last year, ExCo has focused on:

- business planning and the Single Departmental Plan 2019-20;
- the diversity and inclusion strategy, including outcomes of surveys conducted by the Faith and Minority Ethnic Group;
- People Survey and its outputs;
- the refresh of the Departmental Risk Register;
- the new “Shaping our Future” programme, which builds upon the Transformation programme; and
- the Industrial Strategy one year on.

In addition, the committee hold fortnightly meetings on the EU Exit programme to manage identified EU Exit related issues. A key tool that was used was the EU Exit programme dashboard which includes progress of priority issues, business intelligence and risk assessment. It also receives assurance on its EU Exit work from external partners including: Cabinet Office, Infrastructure and Projects Authority and the Government Internal Audit Agency. People and Operations Committee (POpCo)

POpCo is a delegated committee of ExCo. It considers matters relating to human resources, accommodation, security and IT. Over the last year, POpCo has focused on:

- monitoring the success of the new performance management system for 2018-19;
- the shared services unification process;
- establishing the BEIS graduate and experienced entrant programme;
- reviewing the health and safety policy; and
- overseeing the works of the estate and security team.

Performance, Finance and Risk Committee (PFR)

PFR is a delegated committee of ExCo. It considers matters relating to BEIS performance, budgets and risks. PFR met 10 times last year and its focus included:

- ensuring the effective implementation of internal control recommendations;
- strengthening ties with Partner Organisations;
- advising teams on progressing project delivery;
- overseeing our financial management and allocating resources; and
- business case reviews outside the remit of the Projects and Investment Committee.

Projects and Investment Committee (PIC)

PIC is a delegated committee of ExCo and reviews investments over £20 million, or those deemed risky, novel or contentious, to ensure that they are aligned with the department’s objectives. It met 19 times last year, and focused on:

- streamlining acceleration of business cases;
- supporting the robust development of business cases; and
- accelerating EU Exit related business cases to ensure prompt approval. Board and committee attendance

The table below shows board attendance from 1 April 2018 to 31 March 2019. Where members were unable to attend meetings in person, they have been able to share their views in advance with the chair.

| Number of meetings held | Departmental Board | Nominations and Governance Committee | Audit and Risk Assurance Committee | Executive Committee | |-------------------------|--------------------|--------------------------------------|-----------------------------------|---------------------| | **Ministers** | | | | | | The Rt Hon Greg Clark MP| 6/6 | | | | | The Rt Hon Claire Perry MP| 6/6 | | | | | Richard Harrington MP (left 25 Mar 2019)| 6/6 | | | | | **Executive directors/committee members** | | | | | | Alex Chisholm | 6/6 | 3/3 | 4/5 | 18/21 | | Sam Beckett | | | | 19/21 | | Nick Chism (from 1 Jun 2018) | | | | 13/17 | | Julian Critchlow (from 14 May 2018) | | | | 15/18 | | Gareth Davies | | | | 15/21 | | Caleb Deeks | | | | 21/21 | | Sarah Harrison | 6/6 | 3/5 | | 20/21 | | Professor John Loughhead | | | | 12/21 | | Jeremy Pocklington (to 27 Aug 2018) | | | | 6/7 | | Jae Samant | 6/6 | | | 18/21 | | Helen Shirley-Quirk (from 29 Aug 2018 to 7 Oct 2018) | 6/6 | | | 2/2 | | Tom Taylor | 6/6 | 5/5 | | 21/21 | | Doug Watkins (from 1 Sep 2018) | | 2/3 | | 12/14 | | Joanna Whittington (from 8 Oct 2018) | | | | 8/11 | | Alice Hurrell (Nominations Committee from 6 Aug 2018) | 6/6 | | | 1/1 | | **Non-executive directors** | | | | | | Archie Norman | 6/6 | | | | | Nigel Boardman (from 25 Jun 2018) | | 5/5 | | 5/5 | | Rachel Campbell (to 31 Oct 2018) | | | | 0/1 | | Stephen Carter | 5/6 | | | | | Claire Davies | | | | 5/5 | | Professor Dame Anne Dowling (to 31 May 2018) | | 1/1 | | 1/1 | | Louise Fisher (from 19 Feb 2019) | | | | 1/1 | | Bryan Ingleby | | | | 5/5 | | Myriam Madden | | | | 4/5 | | Dame Carolyn McCall | 2/6 | | | | | Leena Nair (from 25 Jun 2018) | | 1/4 | | 2/2 | | Kathryn Parsons | 4/6 | | | | | Stuart Quickenden (ARAC from Nov 2018) | | 6/6 | | 1/2 | | Charles Randell (to 30 Jun 2018) | | 1/1 | | 2/2 | | Lucy Shannon (to 31 Dec 2018) | | | | 1/3 | Compliance with the corporate governance code

The department’s approach to governance is in line with the Cabinet Office’s Corporate Governance in Central Government Departments: Code of Good Practice, (the Code), with two exceptions.

The Code advises on having a roughly equal numbers of ministers, senior civil servants, and non-executives from outside government whereas in BEIS there are a higher number of non-executives. This is because the breadth of departmental business means that the department needs additional business skills and expertise to help it in its objectives to promote trade, boost innovation and help business to grow in a competitive economy.

The BEIS Departmental Board agreed when it was formed in 2016 that risk appetite and tolerance levels would emerge through the early decisions on major strategic issues, and the areas it chose to focus on, rather than an explicit exercise to define risk appetite. As a result, in 2018 the Board has primarily focused its views in relation to risk over the last 12 months on the Industrial Strategy, the UK’s exit from the EU, achieving clean growth and transforming BEIS as a department. During 2019-2020 BEIS will be considering a departmental risk appetite statement to support risk-based decision making.

Quality of data used by the Board

The BEIS Departmental Board meetings covered a variety of topics, which provided guidance, to improve key strategies, policy creation and governance and risk management approaches. The meetings were efficient, board papers were of high quality, and challenge was encouraged. BEIS’s governance team provided a comprehensive secretariat service to the Board and its committees to ensure the effective and efficient administration of the Board and its activities.

Board’s evaluation of its effectiveness

All departments are requested by Cabinet Office to carry out a board effectiveness evaluation for 2018-19, covering the period of 1 April 2018 to 31 March 2019. The Board completed a thorough self-assessment, with the aim of looking to confirm that the actions taken to improve the Board have been beneficial and to identify potential areas that require action for 2019-20.

Results 2018-19:

• BEIS Director Generals were asked for their views on both the Board and how to draw on Non-Executive experience more frequently.

• Board members agreed that the push to ensure agenda items focused on the Industrial Strategy and its impacts on the work of the Department, its reach and work with partners was successful.

• The Board were content with the timing of the papers and that the introduction of Board Intelligence had facilitated this.

• There was positive feedback on how the Board was run by the Governance Team, with particular note taken of the quality and timely receipt of papers. However, the Board recognised the challenges faced around timing to enable full discussion of complex and wide-reaching subject areas. As a result of the evaluation, the Board agreed a series of actions for the forthcoming year so that it continues to improve its effectiveness and efficiency. These were:

- building on Board engagement with other government departments and Partner Organisations by having one item with external participants on each agenda;
- bringing in one or two board apprentices from under-represented groups. These could be on a one-year term and sourced from near-miss candidates from the BEIS public appointments process or ‘up and coming’ talent from Whitehall;
- ensure presenters are in the room to observe the preceding item to aid their understanding of Board dynamics and provide context for their participation; and
- consider revising the scheduling of the Board from a Monday if deemed necessary to protect against fluctuations in senior ministerial attendance.

Partner organisation governance

We have one of the largest networks of partner organisations in government, with a diverse range of bodies. Over the financial year 2018-19, BEIS had 40 partner organisations with a wide span of policy and operational responsibilities. We receive assurance on risks and delivery through; the BEIS corporate reporting system; policy colleagues through the sponsorship model; partner organisations governance statements; and our ARAC members engaging with individual partner organisation ARACs.

Significant issues arising within individual partner organisations are covered in their governance statements. They were not considered significant for inclusion in the departmental governance statement for 2018-19.

Local government

In 2018-19, we provided £27.5 million as grants to local authorities under section 31 of the Local Government Act 2003.

Review of the effectiveness of risk management and internal controls

The review of the effectiveness of our risk management and internal controls have been informed by officials, the annual internal audits carried out by the Government Internal Audit Agency (GIAA) and comments made by the National Audit Office (NAO). Our ARAC committee also provided further assurance.

BEIS has continued to make improvements to the governance, risk management and control environment. To date for 2018-19, no audits have received an unsatisfactory opinion and only three a limited opinion, for which actions are in hand to address the recommendations made by the internal auditors.

BEIS has been able to achieve this while committing resource to EU Exit preparations and implementing complex policy programmes such as the Industrial Strategy and Clean Growth Strategy. GIAA’s annual opinion concluded that our department is as well placed as it can be in its preparedness to deliver EU Exit, successfully establishing the capacity and skills to deliver its obligations and putting in place the governance structures required to oversee delivery.

More broadly our department has taken steps to improve its capability and capacity in other areas with appointments in key Corporate Services roles, creation of a broader Director General group structure, and the launch of a new Transformation programme, transitioning to a single shared service provider. Internal Audit feel BEIS now has the right foundations in these areas and is starting to develop tools that have the potential to be ‘best in government’, although they will take time to embed. Progress made on risk management

Our risks profile is provided in the performance overview section of the report. During 2018 our department embedded its risk management framework. This has been achieved through the introduction of group risk registers, Deputy Director Risk Champions, quarterly risk conversations at group senior management teams and drop-in sessions for staff to seek specialist advice on implementing risk management. These processes have started to enable better risk management and increased consistency across the department.

In addition, we have undertaken work to enhance our risk management capability. We have:

- strengthened monthly reporting processes, conducting specific reviews on departmental risks at senior committees;
- run risk management escalation/de-escalation processes, so accountable individuals are aware of emerging and existing risks;
- developed a risk tool, to help BEIS manage risks more effectively in real-time; and
- cultivated networks with risk functions across government to share best practice and engage with cross-government developments.

We have also strengthened our approach to risk management with our partner organisations (POs). From October 2018, 25 of the Department’s 40 POs started reporting on their risks to BEIS quarterly as part of the Corporate Risk Reporting. The remaining POs are not required to report as they are advisory committees or single office holders. The reports are prepared by policy teams, engaging with their respective POs, and Corporate Governance Sponsors provide challenge. Any PO risks that need to be discussed or escalated will be raised with the Performance, Finance and Risk Committee and subsequently ExCo if appropriate. This new framework provides an overview which is less narrative and more visual; with better quality information to allow for an improved understanding of risks and issues being addressed with POs.

Internal controls environment

Our department has made good progress in reducing the number of internal audit actions that are open, which is helping to address weaknesses in controls and processes. We also successfully piloted a Controls and Assurance Record during 2018-19 that is providing a means of assessing how well the department’s systems and processes are being operated.

We have also completed several projects to help improve controls in critical areas of financial management. This includes taking positive steps to improve expense processes, enabling staff to more easily provide proof of expenditure through the adoption of new technology. Steps have also been taken to increase compliance with HMRC rules by reviewing travel data to identify staff who potentially fall into the category of having more than one permanent place of work. In addition, we have put in place additional checks to strengthen the management of contingent labour contracts that are potentially supplying services through an intermediary.

While there have been great improvements, work continues to refine and strengthen the take-up and compliance with departmental corporate policies. This will be achieved through ensuring clear policies are in place, supported by effective processes, with better data and information available to managers and leadership to judge progress, and ensure that appropriate measures are put in place where areas of weakness are identified.

Ministerial directions

There were no ministerial directions in 2018-19. Ministerial directions are instructions from the Secretary of State which allow the department to proceed with a spending proposal where the Accounting Officer has raised an objection around regularity, propriety, value for money or feasibility. Data protection BEIS notified the Information Commission’s Office (ICO) of four personal data breaches assessed as meeting the ICO’s reporting guidelines. The ICO determined regulatory action was not appropriate in each case but made a few recommendations for action by BEIS.

Information security No significant cyber security breaches were reported in 2018-19. Denial of service attacks and attacks via malicious software are continuing risks to the department. These risks are reviewed by our security team and our commercial partners and appropriate mitigations put in place. We continue work to ensure all internal IT services comply with the ISO27001 security standard.

Counter-fraud and error We have continued to investigate and prevent instances of fraud and recover funds where possible. During the year, levels of fraud detected across the BEIS group of organisations were slightly below the previous year. Levels of fraud prevented increased, as well as successful prosecutions of frauds committed in previous years. There was a marked increase of attempted frauds against the public imitating BEIS and its partner organisations. We will keep monitoring these trends.

We have worked with the Government Internal Audit Agency to implement recommendations to improve our department’s effectiveness. We built on last year’s fraud awareness programmes delivered to BEIS staff by introducing mandatory fraud awareness training for BEIS staff that work in areas at risk of fraud. We also revised our Counter Fraud Action plan to ensure a consistent approach to managing fraud risks. We achieved an overall ‘green’ rating.

Effectiveness of our whistle blowing arrangements

Internal whistle blowing Our procedures offer six different routes for employees to raise concerns, which include an external whistleblowing hotline. Our policy and procedures are accessible to all employees on our intranet and our Line Manager’s Handbook. We have a low number of whistleblowing concerns raised each year; there are no common themes or specific risks identified across the cases. In our 2018 People Survey, a clear majority of staff said they had confidence any concerns raised under the Civil Service Code would be properly investigated. This result was above the average People Survey score for the rest of the Civil Service.

External whistle blowing A small number of whistle blowers came forward in 2018-19 with concerns which were investigated by those best placed to deal with them. While it is encouraging that whistle blowers did come forward, we want to do more to support them and to consider if (within the law) we can improve the feedback we give them. We will be taking this forward next year working with colleagues and external organisations with interests in supporting whistleblowing.

Quality assurance modelling BEIS has had a single modelling quality assurance (QA) process since April 2017, which complies with the AQuA book. Our modelling integrity team provide independent assurance for models and plans. This ensures our models are based on appropriate understanding of evidence and risks. We have identified 87 analytical models in use across BEIS with 87% of these reaching their individual target QA compliance scores or better, raising the BEIS average score to 91%. Those models that are non-compliant have plans to reach compliance targets in 2019-20. Our Partner Organisations that undertake modelling give assurance they have AQuA compliant QA processes in place via their respective Accounting Officer’s statements. Accounting Officer’s conclusion

I have considered the evidence provided regarding the production of the annual Governance Statement and the independent advice and assurance provided by the Audit and Risk Assurance Committee. I conclude that the department has again achieved a ‘moderate’ level of assurance. This assessment is strongly supported by the wide range of internal audits undertaken throughout the year.

This has been achieved while making progress in improving the department’s corporate processes, including addressing the actions identified in the 2017-18 accounts. Improvements have been realised in the department’s corporate systems and processes through the work of Business Partner teams, embedding the sponsorship model for Partner Organisations, introducing a new online IT service management tool to support users, and improvements to risk management and corporate performance reporting. This includes a new online performance reporting tool, which has helped support business areas in identifying and managing their financial, personnel and operational risks.

During 2019-20, we will build on the foundations we have established, with a focus on:

- proactively influencing across Whitehall to support delivery of the Industrial Strategy;
- maintaining the focus on EU Exit preparations and implementation;
- fostering a culture of compliance with the Department’s corporate policies and processes;
- further refinement to internal governance, risk management and spending controls; and
- undertaking further improvement to the governance framework for managing Partner Organisations.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019 Staff report

This has been a year of excellent progress for BEIS people. We have continued to make progress in key areas for the department, including Diversity and Inclusion, Learning and Development and people engagement, against the challenging context of building EU Exit capacity and capability. Our EU delivery has been notable, ensuring the organisation has the resources, talent and skills it needs to deliver this wide-reaching agenda.

Our people with disabilities

BEIS is committed to ensuring equality for all our people, including those with disabilities. As we make clear in our job application process, candidates with a disability who apply for a post in BEIS (under the Guaranteed Interview Scheme) automatically go forward to the interview stage, provided they satisfy the minimum criteria.

We also promote external vacancies in a range of diversity media. All staff are required to take training in diversity and inclusion and unconscious bias. We have achieved Disability Confident Leader Level 3, an independent validation of our inclusive policies and procedures. Where staff are identified as needing reasonable adjustments, these will be provided.

We have an active and engaged Capability Action Network (CAN) which works directly with HR and other areas of the department to create positive change. As a result of feedback from CAN on developing line managers understanding of disability, all new line managers will now undertake the disability ‘inclusive management course’ as part of their induction. The course is available as a civil service learning resource.

Sickness and absence data

Average working days lost to sickness absence for the core Department, UK Space Agency, and Insolvency Service for the 12 months to 31 March 2019 was 2.7, 6.8 and 6.4 respectively.

BEIS is committed to supporting the physical and mental health of its people and fostering employee wellbeing is a key element of our focus. We have in place an employee assistance provider to offer additional support to our people, and a comprehensive offer including ‘Wellbeing Competent Leaders’ and resilience support for teams.

Other people progress during the year

Shaping our Future

We launched ‘Shaping our Future’ at the beginning of 2019 – our new programme of work in making BEIS a great place to work. It is a three-year plan focusing on diversity and inclusion, improving processes, coaching and learning, understanding business, innovation and digital. Plans were developed using the intelligence and ambitions described from consultation with senior leaders, several internal groups, analysis of the People Survey results and research into the changing working environment.

Our former Transformation programme, which launched in 2017, delivered several critical improvements, including a new pay deal which takes BEIS into the top 50% across Whitehall, a new governance model for our 40 partner organisations, a new performance management system (PMS), an overhaul of technology, launch of the BEIS intranet, several new processes, and extensive business skills training. Diversity and inclusion

As the department responsible for creating an ‘economy that works for everyone’, we focus heavily on diversity and inclusion. During the year we have:

- increased the diversity of our workforce;
- rolled out micro behaviours training to over 500 staff;
- consulted nationally on Ethnicity Pay Reporting;
- undergone the Stonewall Workplace Equality Index; assessment;
- in the 2018 staff survey, increased our ‘Inclusion and Fair Treatment’ score from 80% in 2017 to 83% in 2018.

Shared parental leave

During 2018-2019, 35 of our employees took advantage of the government’s Shared Parental Leave scheme. We continue to promote the flexibility our internal shared parental leave policy offers our employees.

Gender pay gap

Details of our Gender Pay Gap at 31 March 2018 together with the actions we are committed to take can be found at: https://www.gov.uk/government/publications/beis-gender-pay-gap-report-and-data-2018. A report for 2019 will be published later this year.

Health, safety and wellbeing

We consider the wellbeing of our people to be paramount. We have an exceptionally good wellbeing offer which covers training in resilience, stress management and we offer counselling from our Employment Assistance Programme. We run events covering all areas of wellbeing, including talks on mental health, disability awareness and an annual sports day. We have trained over 120 Mental Health First Aiders who are based throughout our offices. The Mental Health First Aider role gives first support to those who seek help due to a mental health concern.

We have a strong record in providing a safe and supportive work environment. There were three reported injuries in 2018-19 that are within the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 2013. We encourage staff to ask for reasonable adjustments as part of our commitment to health and safety and our workstation assessment programme. An internal audit review was carried out in 2017 by Government Internal Audit Agency and all actions have been cleared satisfactorily. Trade Union facility time

Facility time is time-off to employees, paid or unpaid to undertake trade union activities as a union representative. The table below shows facility time data for our core Department and agencies for 2018-19.

| 2018-19 | Core Department and agencies¹ | Other agencies not consolidated in the accounts² | Total | |---------|-------------------------------|-----------------------------------------------|-------| | **Union officials** | | | | | Number of employees who were relevant Union Officials | 40 | 43 | 83 | | Full-time equivalent persons | 37.90 | 38.49 | 76.39 | | **No. of employees by working hours spent on facility time** | | | | | 0% of working hours | 7 | 0 | 7 | | 1 - 50% of working hours | 33 | 42 | 75 | | 51 - 99% of working hours | 0 | 1 | 1 | | 100% of working hours | 0 | 0 | 0 | | **Facility time as a percentage of pay bill** | | | | | Total cost of facility time (£) | £97,666 | £180,117 | £277,783 | | Total pay bill (£) | £251,842,000 | £177,277,000 | £429,119,000 | | as a percentage of total pay bill | 0.04% | 0.10% | 0.06% | | **Paid trade union activities** | | | | | (hours spent on paid Trade Union activities ÷ total paid facility time hours) * 100 | 0.00% | 5.47% | 3.93% |

**Notes**

1. Agencies consolidated in the Departmental Group accounts: Insolvency Service and UK Space Agency
2. Other agencies not consolidated in the Departmental Group accounts: Companies House, Intellectual Property Office and Met Office Staff composition as at 31 March 2019

Our staff composition data is compiled using full-time equivalent staff numbers on payroll.

| Gender | Men | Women | Total | |--------|-----|-------|-------| | Executive Committee | 8 | 4 | 12 | | All senior civil servants | 131 | 111 | 242 | | All employees | 2,096 | 1,870 | 3,966 | | All employees % | 53% | 47% | 100% |

Disability

Declaration rate: 62%. Representation for staff who have declared:

- No: 86%
- Yes: 10%
- Prefer not to say: 4%

Ethnicity

Declaration rate: 79%. Representation of staff who have declared:

- White: 78%
- BAME: 18%
- Prefer not to say: 4%

Sexual orientation

Declaration rate: 67%. Representation of staff who have declared:

- Straight: 84%
- LGBT+: 8%
- Prefer not to say: 8% Number of Senior Civil Servants (SCS) staff by salary band

The following table shows the number of senior civil servants by salary range as at 31 March 2019 in the core Department. Bonuses are not included and salary ranges represent actual salary rates. These pay ranges cover staff employed on open-ended and fixed term contracts.

Remuneration of senior civil servants who are outside of the Departmental Board or Executive Committee is based on performance ratings determined by Permanent Secretary and Director Generals. The Permanent Secretary and Director Generals during 2018-19 are presented in the box on the right below.

| Salary range | Number of SCS staff as at 31 March 2019 | Number of SCS staff as at 31 March 2018 | |--------------------|----------------------------------------|----------------------------------------| | Below £59,999 | 0 | 0 | | £60,000 - £64,999 | 3 | 2 | | £65,000 - £69,999 | 74 | 77 | | £70,000 - £74,999 | 54 | 43 | | £75,000 - £79,999 | 21 | 18 | | £80,000 - £84,999 | 13 | 6 | | £85,000 - £89,999 | 9 | 18 | | £90,000 - £94,999 | 26 | 16 | | £95,000 - £99,999 | 6 | 6 | | £100,000 - £104,999| 5 | 5 | | £105,000 - £109,999| 2 | 0 | | £110,000 - £114,999| 3 | 2 | | £115,000 - £119,999| 2 | 2 | | £120,000 - £124,999| 5 | 7 | | £125,000 - £129,999| 5 | 2 | | £130,000 - £134,999| 3 | 2 | | £135,000 - £139,999| 1 | 1 | | £140,000 - £144,999| 3 | 2 | | £145,000 - £149,999| 1 | 2 | | £150,000 - £154,999| 0 | 0 | | £155,000 - £159,999| 1 | 0 | | £160,000 - £164,999| 2 | 0 | | £165,000 - £169,999| 0 | 0 | | £170,000 - £174,999| 1 | 0 | | £175,000 - £179,999| 0 | 0 | | £180,000 - £184,999| 2 | 1 | | £185,000 - £189,999| 0 | 0 | | £190,000 - £194,999| 0 | 0 | | £195,000 - £199,999| 0 | 1 | | **Total** | **242** | **213** |

Permanent Secretary and Director Generals 1 April 2018 to 31 March 2019

**Alex Chisholm** Permanent Secretary

**Sam Beckett** Director General, EU Exit and Analysis

**Nick Chism** Director General, Enterprise (from 1 Jun 2018)

**Julian Critchlow** Director General, Energy Transformation (from 14 May 2018)

**Gareth Davies** Director General, Business and Science

**Sarah Harrison** Director General, Corporate Services

**Professor John Loughhead** Chief Scientific Advisor

**Jeremy Pocklington** Director General, Energy and Security (to 27 Aug 2018)

**Jae Samant** Director General, Market Frameworks

**Helen Shirley-Quirk** Acting Director General, Energy and Security (from 29 Aug to 7 Oct 2018)

**Joanna Whittington** Director General, Energy and Security (from 8 Oct 2018) Analysis of staff numbers and costs

audited information

Staff numbers

The average number of full-time equivalent persons employed in 2018-19 is shown in the table below.

| Number of staff by category | Permanent employed staff | Others | Ministers | Special advisers | Total | Total | |-----------------------------|--------------------------|--------|-----------|------------------|-------|-------| | Core | 3,776 | 277 | 6 | 3 | 4,062 | 3,378 | | Agency | 1,696 | 47 | - | - | 1,743 | 1,612 | | Non departmental public bodies (NDPBs) | 13,621 | 941 | - | - | 14,562 | 13,786 | | Total | 19,093 | 1,265 | 6 | 3 | 20,367 | 18,776 |

Of which:

| Core Department and agencies | 5,472 | 324 | 6 | 3 | 5,805 | 4,990 | | NDPBs and other designated bodies | 13,621 | 941 | - | - | 14,562 | 13,786 | | Total | 19,093 | 1,265 | 6 | 3 | 20,367 | 18,776 |

Staff costs

During the year, £18,519,467 of staff costs were capitalised, (2017-18: £13,932,358) and 386 employees (2017-18: 294 employees) in the Departmental Group were engaged on capital projects during the reporting period.

Staff severance costs for current and prior year are included in wages and salaries. Further detail on exit packages is included on page 72.

Included within the total net costs of other staff shown below are ministers’ total net costs of £329,921 (2017-18: £344,959) and special advisors’ total net costs of £272,475 (2017-18: £181,693).

| | Permanently employed staff £m | Others £m | Total £m | Total £m | |----------------------|-------------------------------|-----------|----------|----------| | Wages and salaries | 785 | 70 | 855 | 779 | | Social security costs| 86 | - | 86 | 81 | | Other pension costs | 179 | - | 179 | 168 | | **Sub total** | **1,050** | **70** | **1,120**| **1,028**| | Less recoveries in respect of outward secondments | (1) | - | (1) | (3) | | **Total net costs** | **1,049** | **70** | **1,119**| **1,025**|

Of which:

| Core Department and agencies | 309 | 21 | 330 | 273 | | NDPBs and other designated bodies | 740 | 49 | 789 | 752 | | **Total net costs** | **1,049** | **70** | **1,119** | **1,025** | Pension schemes

Principal Civil Service Pension Scheme

Nuclear site licence companies are not included in these pension schemes. The Principal Civil Service Pension Scheme (PCSPS) and the Civil Servant and Other Pension Scheme (CSOPS), known as “Alpha”, are an unfunded multi-employer defined benefit scheme in which the department is unable to identify its share of the underlying assets and liabilities. The scheme actuary valued the PCSPS as at 31 March 2016. Further details can be found in the resource accounts of the Cabinet Office Civil Superannuation (www.civilservicepensionscheme.org.uk/about-us/resource-accounts/).

For 2018-19, employer contributions of £65,627,469 were payable to the PCSPS (2017-18: £55,532,213) at one of four rates in the range 20.0% to 24.5% (2017-18: 20.0% to 24.5%) of pensionable pay, based on salary bands.

The scheme’s actuary reviews employer contributions usually every four years following a full scheme valuation. The contribution rates are set to meet the cost of the benefits accruing during 2018-19 to be paid when the member retires and not the benefits paid during this period to existing pensioners.

Employees can opt to open a partnership pension account, a stakeholder pension with an employer contribution. Employers’ contributions of £1,192,970 (2017-18: £1,023,802) were paid to one or more of the panel of three appointed stakeholder pension providers. Employer contributions are age-related and range from 8% to 14.75%. Employers also match employee contributions up to 3% of pensionable earnings. In addition, employer contributions of £12,811 (2017-18: £15,704), 0.5% (2017-18: 0.5%) were payable to the PCSPS to cover the cost of the future provision of lump sum benefits on death in service and ill health retirement of these employees.

Contributions due to the partnership pension providers at 31 March 2019 were £38,599 (2017-18: £27,666). Contributions prepaid at that date were £nil (2017-18: nil).

In 2018-19, 18 persons (2017-18: 28 persons) across the Departmental Group retired early on ill-health grounds; the total additional accrued pension liabilities in the year amounted to £1,134,823 (2017-18: £1,749,313).

Other pension schemes

Employer contributions to other pension schemes in 2018-19, amounted to £261,129,179 (2017-18: £234,198,424). Employer contributions include employers’ contributions, current service costs and where appropriate past service costs of funded pension schemes. Further details can be found in the accounts of the department’s NDPBs and other designated bodies. A list of these bodies is provided in note 28.

Nuclear site licence companies: staff numbers and costs

Nuclear site licence staff costs are disclosed separately as they are included in the amounts shown for utilisation in the NDA Decommissioning provision in note 19 rather than being reported as staff costs in the Statement of Comprehensive Net Expenditure.

| Number of staff (full-time equivalent) | Permanently employed staff | Others | Total | 2018-19 | 2017-18 | |----------------------------------------|---------------------------|--------|-------|---------|---------| | Wages and salaries (£m) | 780 | 46 | 826 | 835 | | Social security costs (£m) | 88 | - | 88 | 90 | | Other pension costs (£m) | 148 | - | 148 | 135 | | Less recoveries in respect of outward secondments (£m) | - | - | - | - | | Total costs (£m) | 1,016 | 46 | 1,062 | 1,060 | Exit packages

audited information

Redundancy and other departure costs have been paid in accordance with the provisions of the Civil Service Compensation Scheme, a statutory scheme made under the Superannuation Act 1972. Exit costs are accounted for in full in the year that the departure is agreed and are based on the expected cost in relation to that financial year. Where the department has agreed early retirements, the additional costs are met by the department and not by the Civil Service Pension Scheme. Ill-health retirement costs are met by the pension scheme and are not included in the table.

Any organisations that are covered by the Civil Service Pension Scheme are subject to the £95,000 cap on exit payments. This is only a guideline rather than legislation, and organisations can apply to pay over the cap subject to Cabinet Office’s approval. During 2018-19, there was no exit package (2017-18: One exit package of £108,054) above £95,000 awarded by the core Department.

In November 2016, an amendment to the Civil Service Compensation Scheme introduced a new lower tariff for all exit schemes (voluntary exit, voluntary redundancy and compulsory redundancy). This amendment was subsequently challenged under a Judicial Review, which resulted in it being quashed in 2017-18, and adjustments were required to some awards made under the November 2016 terms. As result, in 2018-19, no exit packages (2017-18: 3) paid by the department required additional payments.

| Exit package cost band | Number of compulsory redundancies | Number of other departures agreed | Total number of exit packages by cost band | |------------------------|-----------------------------------|-----------------------------------|------------------------------------------| | | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | | Less than £10,000 | 7 | 6 | 23 | 41 | 30 | 47 | | £10,000 - £25,000 | 33 | 17 | 25 | 77 | 58 | 94 | | £25,000 - £50,000 | 13 | 21 | 25 | 89 | 38 | 110 | | £50,000 - £100,000 | - | - | 13 | 124 | 13 | 124 | | £100,000 - £150,000 | 1 | - | 4 | 39 | 5 | 39 | | £150,000 - £200,000 | - | - | - | 11 | - | 11 | | More than £200,000 | - | - | - | 11 | - | 11 | | Total number of exit packages | 54 | 44 | 90 | 392 | 144 | 436 |

Of which:

- Core Department and agencies
- NDPBs and other designated bodies

| Total number of exit packages | 54 | 44 | 90 | 392 | 144 | 436 |

Total cost (£)

| | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | |------------------------|----------|----------|----------|----------|----------|----------| | Core Department and agencies | - | - | 677,852 | 594,655 | 677,852 | 594,655 | | NDPBs and other designated bodies | 1,092,442 | 1,046,881 | 2,270,037 | 22,862,351 | 3,362,479 | 23,909,232 | | Total | 1,092,442 | 1,046,881 | 2,947,889 | 23,457,006 | 4,040,331 | 24,503,887 | Staff on loan

As at 31 March 2019, 34 members of staff permanently employed by the core Department were attached on loan to other organisations on a short-term basis (loan duration up to six months) and 64 staff on a long-term basis (loan duration longer than six months). 29 people were attached to the core Department on loan from other organisations on a short-term basis and 55 on a long-term basis. Costs relating to staff on short-term loans were charged to Administration budgets in cases where the core Department paid the cost or would have been charged to Administration budgets had the core Department paid the cost.

| Grade | Outward staff loans | Inward staff loans | |------------------------|---------------------|--------------------| | | Less than 6 months | More than 6 months | Less than 6 months | More than 6 months | | Administrative assistant | - | - | - | 1 | | Executive officer | - | 11 | 5 | 2 | | Higher executive officer | 6 | 12 | 3 | 3 | | Senior executive officer | 5 | 6 | 3 | 7 | | Grade 7 | 14 | 21 | 9 | 22 | | Grade 6 | 5 | 10 | 4 | 11 | | Senior civil service | 4 | 4 | 5 | 9 | | Total | 34 | 64 | 29 | 55 | Off-payroll engagements

Off-payroll engagements refer to workers paid off-payroll, without deducting tax and national insurance at source, typically contractors. In 2018-19, BEIS released new guidance and a more robust process to determine whether workers fall into off-payroll or on-payroll arrangements. The new process has been shared across the BEIS family.

The tables below present data on our off-payroll engagements. Tables 1a, 2a and 3a exclude the nuclear site licence companies; they are disclosed separately in tables 1b, 2b and 3b. Organisations within the reporting boundary, which have no employees and staff costs, have been excluded.

Table 1a: Off-payroll engagements as of 31 March 2019, for more than £245 per day and that last longer than 6 months

| At time of reporting, number that have existed for: | Total number | Less than 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 years or more | |---------------------------------------------------|--------------|-----------------|--------------|--------------|--------------|----------------| | **Core Department and agencies** | | | | | | | | Core Department | 91 | 26 | 42 | 5 | 18 | 0 | | Insolvency Service | 10 | 10 | 0 | 0 | 0 | 0 | | UK Space Agency | 13 | 9 | 3 | 1 | 0 | 0 | | **Consolidated in Departmental Group accounts** | | | | | | | | (excluding nuclear site licence companies) | | | | | | | | Advisory, Conciliation and Arbitration Service | 6 | 0 | 6 | 0 | 0 | 0 | | British Business Bank plc | 18 | 4 | 8 | 4 | 2 | 0 | | Civil Nuclear Police Authority | 7 | 4 | 2 | 0 | 1 | 0 | | Coal Authority | 1 | 0 | 0 | 1 | 0 | 0 | | Competition Appeal Tribunal and Competition Service| 1 | 0 | 0 | 0 | 0 | 1 | | Diamond Light Source Ltd | 8 | 3 | 1 | 1 | 2 | 1 | | Low Carbon Contracts Company Ltd and Electricity Settlements Company Ltd | 1 | 1 | 0 | 0 | 0 | 0 | | Nuclear Decommissioning Authority | 23 | 10 | 9 | 1 | 1 | 2 | | 1Radioactive Waste Management Ltd | 21 | 3 | 11 | 1 | 2 | 4 | | 1NDA Archives Ltd | 1 | 1 | 0 | 0 | 0 | 0 | | Oil and Gas Authority | 1 | 0 | 1 | 0 | 0 | 0 | | UK Research and Innovation | 25 | 12 | 8 | 2 | 1 | 2 | | UK Shared Business Services Ltd | 13 | 4 | 8 | 1 | 0 | 0 | | UK Atomic Energy Authority | 62 | 14 | 24 | 7 | 0 | 17 | | **Not consolidated in the Departmental Group accounts** | | | | | | | | British Hallmarking Council | 0 | 0 | 0 | 0 | 0 | 0 | | Groceries Code Adjudicator | 1 | 0 | 1 | 0 | 0 | 0 | | Pubs Code Adjudicator | 2 | 0 | 1 | 1 | 0 | 0 | | **Total** | 305 | 101 | 125 | 25 | 27 | 27 |

1 The core Department’s contingent labour requirements are principally driven by ensuring the department has access to the right skills and capacity to manage delivery of its obligations in preparing to deliver EU Exit. Table 2a: New off-payroll engagements, or those that reached 6 months in duration, between 1 April 2018 and 31 March 2019, for more than £245 per day and that last longer than 6 months

| Core Department and agencies | Total number | Number assessed as in scope of IR35 tax assessment | Number assessed as outside scope of IR35 tax assessment | Number engaged directly (via PSC contracted to BEIS) and are on BEIS payroll | No. of engagements reassessed for consistency/assurance purposes during the year | No. of engagements that saw change to IR35 status following the consistency review | |-----------------------------|--------------|---------------------------------------------------|------------------------------------------------------|-----------------------------------------------------------------|-------------------------------------------------|-------------------------------------------------| | Core Department | | | | | | | | Core Department | 66 | 7 | 59 | 0 | 0 | 0 | | Insolvency Service | 10 | 7 | 3 | 0 | 10 | 10 | | UK Space Agency | 13 | 2 | 11 | 0 | 0 | 0 | | Consolidated in Departmental Group accounts (excluding nuclear site licence companies) | | | | | | | | Advisory, Conciliation and Arbitration Service | 12 | 0 | 12 | 0 | 0 | 0 | | British Business Bank plc | 18 | 1 | 17 | 0 | 0 | 0 | | Civil Nuclear Police Authority | 5 | 0 | 5 | 0 | 5 | 0 | | Coal Authority | 12 | 0 | 12 | 0 | 0 | 0 | | Diamond Light Source Ltd | 4 | 0 | 4 | 0 | 4 | 0 | | Low Carbon Contracts Company Ltd | 6 | 4 | 2 | 0 | 0 | 0 | | Nuclear Decommissioning Authority | 16 | 4 | 12 | 0 | 14 | 1 | | 1Radioactive Waste Management Ltd | 10 | 3 | 7 | 7 | 0 | 0 | | 1NDA Archives Ltd | 1 | 1 | 0 | 0 | 0 | 0 | | Oil and Gas Authority | 4 | 0 | 4 | 0 | 0 | 0 | | UK Research and Innovation | 23 | 12 | 11 | 0 | 0 | 0 | | UK Shared Business Services Ltd | 23 | 0 | 23 | 0 | 16 | 0 | | UK Atomic Energy Authority | 30 | 29 | 1 | 0 | 1 | 0 | | Not consolidated in the Departmental Group accounts | | | | | | | | British Hallmarking Council | 2 | 1 | 1 | 0 | 1 | 1 | | Total | 255 | 71 | 184 | 7 | 51 | 12 | Table 3a: Off-payroll engagements of board members, and/or, senior officials with significant financial responsibility, between 1 April 2018 and 31 March 2019

| Core Department and agencies | Number of off-payroll engagements or board members, and/or senior officials with significant financial responsibility | Total number of individuals on payroll and off-payroll that have been deemed board members, and/or others with significant financial responsibility | |-----------------------------|-----------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------| | Core Department | 0 | 29 | | Insolvency Service | 0 | 10 | | UK Space Agency | 0 | 8 | | **Consolidated in Departmental Group accounts (excluding nuclear site licence companies)** | | | | Advisory, Conciliation and Arbitration Service | 0 | 5 | | British Business Bank plc | 0 | 7 | | BBB Patient Capital Holdings Ltd | 0 | 1 | | British Business Investments Ltd | 0 | 2 | | British Business Finance Ltd | 0 | 7 | | British Business Financial Services Ltd | 0 | 7 | | British Patient Capital Limited | 0 | 1 | | Capital for Enterprise Fund Managers Ltd | 0 | 2 | | Civil Nuclear Police Authority | 0 | 4 | | Coal Authority | 0 | 12 | | Competition Appeal Tribunal and Competition Service | 2 | 6 | | Cornwall and Isles of Scilly Investments Ltd | 0 | 1 | | Diamond Light Source Ltd | 0 | 6 | | The Financial Reporting Council Ltd | 0 | 2 | | Low Carbon Contracts Company Ltd | 0 | 12 | | Midlands Engine Investments Ltd | 0 | 1 | | Northern Powerhouse Investments Ltd | 0 | 1 | | Nuclear Decommissioning Authority | 0 | 18 | | Radioactive Waste Management Ltd | 0 | 7 | | Oil and Gas Authority | 0 | 1 | | South Tees Site Company Ltd | 0 | 2 | | UK Research and Innovation | 3 | 13 | | UK Shared Business Services Ltd | 0 | 2 | | UK Atomic Energy Authority | 1 | 17 | | AEA Insurance Ltd | 3 | 3 | | **Not consolidated in the Departmental Group accounts** | | | | British Hallmarking Council | 1 | 1 | | Committee on Climate Change1 | 0 | 14 | | Groceries Code Adjudicator | 1 | 1 | | Pubs Code Adjudicator | 0 | 2 | | Small Business Commissioner | 2 | 3 | | **Total** | **13** | **208** | Notes to table 3a: off-payroll engagements of board members The notes below relate to the senior off-payroll engagements in table 3a. It includes details of the exceptional circumstances that led to each off-payroll engagement and the length of time each engagement lasted.

| Organisation | Duration and reason for senior off-payroll appointment | |---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | Competition Appeal Tribunal and Competition Service | From 2013\
The President has a statutory duty to provide training to members of the Tribunal, and the off-payroll member was appointed as a training provider on his behalf. He was appointed in 2013, and the contract was renewed in 2015 and 2017. He has been a member of the Tribunal since its inception in 2000 and has knowledge of its processes and case histories and is a fellow of the Higher Education Academy among other qualifications. The President and the Registrar of the Tribunal view it as very important that he continues to develop and deliver training, and provide support with other engagements.\
From January 2019\
Additional off payroll member appointed in January 2019 for the Training Committee. | | UK Atomic Energy Authority | For March 2019\
Short-term engagement of a retiring board member at the end of their tenure to cover the period until the appointment of a replacement. | | AEA Insurance Ltd (AEAIL) | From 2002 and 2005 respectively\
AEAIL is a captive insurance company registered in the Isle of Man and subject to their tax and NI legislation. AEAIL does not employ anyone. Two AEAIL directors are off-payroll by default and are paid a small fee by AEAIL.\
From 2014 to 2019\
The third off-payroll director is a director of UKAEA and on UKAEA payroll. | | Groceries Code Adjudicator | Appointed in June 2013\
The Adjudicator | | British Hallmarking Council (BHC) | From 1 April to 5 April 2018\
Since 2017, the Chair had been paid under off-payroll arrangements as they were self employed. In 2018, advice was taken by the BHC; it was concluded that the role is deemed to be a statutory office holder, employers national insurance was payable, and a payroll needed. This was put into operation in 2018, and backdated to 6 April 2018. | | Small Business Commissioner (SBC) | From 7 January 2019 to present\
The SBC has two non-executive directors on their Advisory Board and Audit, Risk & Assurance Board. These members have a contract to work with the SBC for four years. | Nuclear site licence companies: off-payroll engagements

The nuclear site licence companies deliver work for the Nuclear Decommissioning Authority (NDA). These companies are included within the departmental accounting boundary; however, they operate with a high degree of autonomy. Although they have a higher number of off-payroll engagements, off-payroll workers represent a small proportion of the overall workforce. There is a need to bring in unique skills and experience which cannot be found in house due to the specialised and project driven nature of their work.

Table 1b: Off-payroll engagements as of 31 March 2019, for more than £245 per day and that last longer than 6 months

| Nuclear site licence companies | Total number | Less than 1 year | 1 to 2 years | 2 to 3 years | 3 to 4 years | 4 years or more | |-------------------------------|--------------|-----------------|--------------|--------------|--------------|----------------| | Dounreay Site Restoration Ltd | 41 | 9 | 4 | 4 | 10 | 14 | | LLW Repository Ltd | 48 | 16 | 9 | 10 | 8 | 5 | | Magnox Ltd | 166 | 16 | 54 | 28 | 4 | 64 | | Sellafield Ltd | 321 | 178 | 32 | 15 | 24 | 72 | | **Total** | **576** | **219** | **99** | **57** | **46** | **155** |

Table 2b: New off-payroll engagements, or those that reached 6 months in duration, between 1 April 2018 and 31 March 2019, for more than £245 per day and that last longer than 6 months

| Nuclear site licence companies | Total number | Number assessed as caught by IR35 | Number assessed as not caught by IR35 | Number engaged directly (via PSC contracted to BEIS) and are on the BEIS payroll | No. of engagements reassessed for consistency/assurance purposes during the year | No. of engagements that saw a change to IR35 status following the consistency review | |-------------------------------|--------------|-----------------------------------|--------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------|---------------------------------------------------------------------------------| | Dounreay Site Restoration Ltd | 10 | 0 | 0 | 0 | 0 | 0 | | LLW Repository Ltd | 53 | 0 | 53 | 0 | 0 | 0 | | Magnox Ltd | 61 | n/a | n/a | n/a | n/a | n/a | | Sellafield Ltd | 59 | 23 | 27 | 3 | 0 | 0 | | **Total** | **183** | **23** | **80** | **3** | **0** | **0** | Table 3b: Off-payroll engagements of board members, and/or, senior officials with significant financial responsibility, between 1 April 2018 and 31 March 2019

| Nuclear site licence companies | Number of off-payroll engagements of board members, and/or senior officials with significant financial responsibility | Total number of individuals on payroll and off-payroll that have been deemed ‘board members, and/or others with significant financial responsibility’ during the financial year | |-------------------------------|-------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------| | Dounreay Site Restoration Ltd | 8 | 9 | | LLW Repository Ltd | 2 | 10 | | Magnox Ltd | 2 | 2 | | Sellafield Ltd | 0 | 1 | | **Total** | **12** | **22** |

Notes to table 3b: off-payroll engagements of board members The notes below relate to the senior off-payroll engagements in table 3b. It includes details of the exceptional circumstances that led to each off-payroll engagement and the length of time each engagement lasted.

| Organisation | Duration and reason for senior off-payroll appointment | |-------------------------------|------------------------------------------------------------------------------------------------------------------------| | Dounreay Site Restoration Ltd | i) From 1 Apr 2013 to 22 May 2018, ii) From 30 Sep 2015 to 31 Mar 2019, iii) From 19 Feb 2016 to 31 Mar 2019, iv) From 1 Dec 2015 to date, v) and vi) From 1 Dec 2016 to date, vii) From 16 May 2017 to date, viii) From 16 Nov 2018 to date | | | The eight off-payroll board members are employed by the Parent Body Organisation (PBO), Cavendish Dounreay Partnership Ltd, thus they are not on Dounreay’s payroll. Dounreay pay the PBO for their services. | | LLW Repository Ltd | From 30 Sept 2011 | | | Post holder supplied by the parent body organisation as required by contractual arrangements with NDA. | | | From 1 Dec 2015 | | | Post holder supplied by the parent body organisation as required by contractual arrangements with NDA. | | Magnox Ltd | From 13 Nov 2017 and 24 Oct 2017 respectively | | | The Finance Director and Managing Director are seconded from the parent organisation, Cavendish Fluor Ltd; as such they are not on Magnox’s payroll. This arrangement will cease when Magnox becomes a subsidiary of the NDA on 1 Sept 19. |

Consultancy expenditure The Departmental Group’s expenditure on consultancy in 2018-19 was £61.9 million (2017-18: £63.0 million), of which £30.8 million (2017-18: £41.4 million) was related to Site Licence Companies. Consultants are hired to work on projects in a number of specific situations: where the department does not have the skills set required; where the particular requirement falls outside the core business of civil servants; or where an external, independent perspective is required. When used appropriately, consultancy can be a cost effective and efficient way of getting the temporary and skilled external input that the department needs. We are committed to the consistent application of the Cabinet Office’s 2010 controls on consultancy and other spending. Remuneration report

Remuneration policy

Service contracts The Constitutional Reform and Governance Act 2010 requires Civil Service appointments to be made on merit on the basis of fair and open competition. The Recruitment Principles published by the Civil Service Commission specify the circumstances when appointments may be made otherwise. Unless otherwise stated below, the officials covered by this report hold appointments which are open-ended. Early termination, other than for misconduct, would result in the individual receiving compensation as set out in the Civil Service Compensation Scheme. Further information about the work of the Civil Service Commissioners can be found at http://www.civilservicecommission.org.uk.

Ministers Remuneration of ministers is determined in accordance with the provisions of the Ministerial and other Salaries Act 1975 (as amended by The Ministerial and other Salaries Order 1996) and the Ministerial and other Pensions and Salaries Act 1991.

Senior civil servants The Senior Salaries Review Body provides independent advice to the Prime Minister on the remuneration of senior civil servants. The review body considers economic considerations such as local variations in labour markets and funds available to departments. Further information about the work of the review body can be found at https://www.gov.uk/government/organisations/review-body-on-senior-salaries. Ministers: salary and pension entitlements

**audited information**

Salary and pension entitlements of ministers of the department for the year ending 31 March 2019 are set out in the tables below.

**Ministers single total figure of remuneration**

| Ministers | Salary (£) | Pension benefits (to nearest £1,000) | Total (to nearest £1,000) | |-----------|------------|--------------------------------------|--------------------------| | Secretary of State | | | | | Rt Hon Greg Clark MP | 67,505 | 17,000 | 84,000 | | Ministers of State | | | | | Rt Hon Claire Perry MP (from 12 June 2017) | 31,680 | 7,000 | 39,000 | | Chris Skidmore MP (from 5 December 2018) | 10,219 | 3,000 | 13,000 | | Sam Gyimah MP (from 10 January 2018 to 30 November 2018) | 29,040 | 5,000 | 34,000 | | Parliamentary Under-Secretaries of State | | | | | Rt Hon Lord Henley (from 27 October 2017) | 105,076 | 17,000 | 122,000 | | Kelly Tolhurst MP (from 19 July 2018) | 15,072 | 4,000 | 19,000 | | Richard Harrington MP (from 14 June 2017 to 25 March 2019) | 27,608 | 6,000 | 33,000 | | Andrew Griffiths MP (from 10 January 2018 to 14 July 2018) | 12,030 | 1,000 | 13,000 |

**Notes**

Where ministers have moved to or from another department during the year, details of any remuneration relating to their subsequent or prior roles will be in that department’s remuneration report. Ministers who transfer from another department continue being paid at the appropriate rate of pay with effect from the first day of the month following the date of appointment. Former ministers who transfer to other departments are paid at their current rate of pay up to the end of the month. Any increase in ministers’ salaries on transfer from the date of appointment is paid by their new department.

Salary information above excludes employers’ national insurance contributions. None of the ministers of the department received any benefits-in-kind during the year.

1. The value of pension benefits accrued during the year is calculated as (real increase in pension multiplied by 20) less (contributions made by the individual). Real increase excludes increases due to inflation or any increase or decrease due to transfer of pension rights.
2. Full year equivalent salary for 2017-18 is £31,680.
3. Full year equivalent salary for 2018-19 is £31,680; joint Minister of State at Department for Education but paid by Department for Business, Energy and Industrial Strategy.
4. Full year equivalent salary for 2018-19 is £31,680 (2017-18: £31,680); salary for 2018-19 includes £7,920 statutory payment on cessation of Ministerial office; joint Minister of State at Department for Education but paid by Department for Business, Energy and Industrial Strategy.
5. Full year equivalent salary for 2017-18 is £105,076; salary includes Lords Office Holders’ Allowance of £36,366.
6. Full year equivalent salary for 2018-19 is £22,375; formerly Assistant Government Whip paid by HM Treasury.
7. Full year equivalent salary for 2018-19 is £22,375 (2017-18: £22,375); salary for 2018-19 includes £5,594 statutory payment on cessation of Ministerial office.
8. Full year equivalent salary for 2018-19 is £22,375 (2017-18: £22,375); salary for 2018-19 includes £5,594 statutory payment on cessation of Ministerial office.

### Ministers: pension benefits

| Ministers | Ministers pension benefits at age 65 at 31 March 2019 | Real increase in pension at age 65 | CETV at 31 March 2018 | CETV at 31 March 2018 restated | Real increase in CETV | |-----------|------------------------------------------------------|-----------------------------------|-----------------------|-------------------------------|----------------------| | Secretary of State | | | | | | | Rt Hon Greg Clark MP | 10-15 | 0-2.5 | 142 | 121 | 8 | | Ministers of State | | | | | | | Rt Hon Claire Perry MP (from 12 June 2017) | 0-5 | 0-2.5 | 42 | 33 | 4 | | Chris Skidmore MP (from 5 December 2018) | 0-5 | 0-2.5 | 7 | 6 | 1 | | Sam Gyimah MP (from 10 January 2018 to 30 November 2018) | 0-5 | 0-2.5 | 28 | 23 | 2 | | Parliamentary Under-Secretaries of State | | | | | | | Rt Hon Lord Henley (from 27 October 2017) | 0-5 | 0-2.5 | 45 | 21 | 16 | | Kelly Tolhurst MP (from 19 July 2018) | 0-5 | 0-2.5 | 5 | 2 | 1 | | Richard Harrington MP (from 14 June 2017 to 25 March 2019) | 0-5 | 0-2.5 | 26 | 18 | 5 | | Andrew Griffiths MP (from 10 January 2018 to 14 July 2018) | 0-5 | 0-2.5 | 5 | 4 | 1 |

1. Where ministers joined or left during the course of the year, their CETV opening or closing amounts will be as at their joining or leaving dates. See notes to Remuneration report for explanation of CETV.
2. Due to a change in calculation factors by the Government Actuary, opening CETV amounts have been restated. Senior managers: salary and pension entitlements

**audited information**

Salary and pension entitlements of senior managers of the Core Department are set out in the tables below which comprise all those who were members of the Departmental Board or Executive Committee during 2018-19.

### Senior managers single total figure of remuneration

| Officials | Salary (£'000)¹ | Bonus payments (£'000) | Pension benefits (to nearest £1,000)² | Total (£'000) | |-----------|-----------------|------------------------|----------------------------------------|--------------| | | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | | Alex Chisholm | 180-185 | 180-185 | 5-10 | - | 70,000 | 69,000 | 255-260 | 245-250 | | Sam Beckett | 125-130 | 125-130 | 10-15 | 10-15 | 38,000 | 32,000 | 175-180 | 165-170 | | Nick Chism (from 1 June 2018)³ | 115-120 | - | - | - | 46,000 | - | 160-165 | - | | Julian Critchlow (from 14 May 2018)⁴ | 120-125 | - | - | - | - | - | 120-125 | - | | Gareth Davies | 130-135 | 125-130 | 10-15 | 10-15 | 49,000 | 38,000 | 190-195 | 175-180 | | Sarah Harrison (from 28 February 2018)⁵ | 140-145 | 10-15 | - | - | 71,000 | 3,000 | 210-215 | 10-15 | | Jeremy Pocklington (to 27 August 2018)⁶ | 45-50 | 120-125 | - | 10-15 | 17,000 | 43,000 | 65-70 | 170-175 | | Jaae Samant⁷ | 125-130 | 125-130 | - | - | 99,000 | 160,000 | 220-225 | 285-290 | | Helen Shirley-Quirk (from 29 August 2018 to 7 October 2018)⁸ | 10-15 | - | - | - | 4,000 | - | 10-15 | - | | Joanna Whittington (from 8 October 2018)⁹ | 75-80 | - | - | - | 23,000 | - | 95-100 | - | | John Loughhead | 130-135 | 130-135 | - | - | 62,000 | 57,000 | 190-195 | 185-190 | | Caleb Deeks (from 23 May 2017)¹⁰ | 100-105 | 75-80 | 0-5 | - | 61,000 | 68,000 | 165-170 | 140-145 | | Tom Taylor (from 15 January 2018)¹¹ | 125-130 | 25-30 | 5-10 | - | 47,000 | 7,000 | 180-185 | 30-35 | | Doug Watkins (from 1 September 2018)¹² | 70-75 | - | 10-15 | - | 57,000 | - | 135-140 | - |

1 Salary information excludes employers’ national insurance contributions. No senior managers received any benefits-in-kind during the year or compensation for loss of office. Where managers have moved to or from a similar senior role in another department during the year, details of any remuneration relating to their subsequent or prior roles will be in that department’s remuneration report.

2 The value of pension benefits accrued during the year is calculated as (real increase in pension multiplied by 20) plus (real increase in any lump sum) less (contributions made by the individual). Real increase excludes increases due to inflation or any increase or decrease due to transfer of pension rights.

3 Full year equivalent salary for 2018-19 is 140-145.

4 Full year equivalent salary for 2018-19 is 140-145.

5 Full year equivalent salary for 2017-18 is 140-145.

6 Full year equivalent salary for 2018-19 is 120-125; transferred on 27 August to Ministry of Housing, Communities and Local Government.

7 Full year equivalent salary for 2017-18 is 120-125; amount paid in 2017-18 includes pay adjustment relating to 2016-17.

8 Full year equivalent salary for 2018-19 is 95-100.

9 Full year equivalent salary for 2018-19 is 155-160.

10 Full year equivalent salary for 2017-18 is 85-90.

11 Full year equivalent salary for 2017-18 is 120-125.

12 Full year equivalent salary for 2018-19 is 120-125.

## Senior managers pension benefits

| Officials | Accrued pension at pension age as at 31 March 2019 and related lump sum | Real increase in pension and related lump sum at pension age | CETV at 31 March 2019 | CETV at 31 March 2018 | Real increase in CETV | Employer contribution to partnership pension account | Nearest £100 | |-----------|-------------------------------------------------|-------------------------------------------------|-----------------|-----------------|-----------------|-------------------------------------------------|------------| | Alex Chisholm | 25-30 | 2.5-5 | 332 | 246 | 37 | - | | | Sam Beckett | 50-55 plus lump sum of 115-120 | 0-2.5 plus lump sum of (2.5-0) | 947 | 822 | 17 | - | | | Nick Chism (from 1 June 2018) | 0-5 | 2.5-5 | 32 | - | 24 | - | | | Julian Critchlow (from 14 May 2018) | - | - | - | - | - | - | | | Gareth Davies | 40-45 | 2.5-5 | 614 | 504 | 22 | - | | | Sarah Harrison (from 28 February 2018) | 50-55 | 2.5-5 | 914 | 773 | 47 | - | | | Jeremy Pocklington (to 27 August 2018) | 40-45 plus lump sum of 20-25 | 0-2.5 plus lump sum of (2.5-0) | 551 | 536 | 6 | - | | | Jaee Samant | 45-50 plus lump sum of 110-115 | 5-7.5 plus lump sum of 5-7.5 | 886 | 719 | 71 | - | | | Helen Shirley-Quirk (from 29 August 2018 to 7 October 2018) | 35-40 plus lump sum of 90-95 | 0-2.5 plus lump sum of (2.5-0) | 743 | 739 | 2 | - | | | Joanna Whittington (from 8 October 2018) | 35-40 plus lump sum of 70-75 | 0-2.5 plus lump sum of (2.5-0) | 674 | 594 | 10 | - | | | John Loughhead | 10-15 | 2.5-5 | 224 | 169 | 45 | - | | | Joanna Whittington (from 8 October 2018) | 35-40 plus lump sum of 70-75 | 0-2.5 plus lump sum of (2.5-0) | 674 | 594 | 10 | - | | | John Loughhead | 10-15 | 2.5-5 | 224 | 169 | 45 | - | | | Caleb Deeks (from 23 May 2017) | 25-30 | 2.5-5 | 319 | 239 | 27 | - | | | Tom Taylor (from 15 January 2018) | 40-45 plus lump sum of 95-100 | 2.5-5 plus lump sum of (2.5-0) | 720 | 605 | 22 | - | | | Doug Watkins (from 1 September 2018) | 55-60 plus lump sum of 150-155 | 2.5-5 plus lump sum of 2.5-5 | 1,139 | 1,018 | 42 | - | |

1 Where senior managers joined or left during the course of the year, their CETV opening or closing amounts will be as at their joining or leaving dates. See Notes to Remuneration report for explanation of CETV.

2 CETV as at 31 March 2018 increased from 818 as disclosed in 2017-18 report to 822 as result of retrospective change to service history.

3 Not a member of Civil Service pension arrangements for reporting year. Notes to the Remuneration report

The information in this report relates only to the core Department. Similar information relating to chief executives and most senior managers of the executive agencies and other bodies of the departmental family is given in the separate annual reports and accounts of the relevant bodies.

Salary

‘Salary’ includes gross salary; overtime; reserved rights to London weighting or London allowances; recruitment and retention allowances; private office allowances and any other allowance to the extent that it is subject to UK taxation. This report is based on accrued payments made by the core Department and thus recorded in these accounts. In respect of ministers in the House of Commons, departments bear only the cost of the additional ministerial remuneration; the salary for their services as an MP (£77,379 from 1 April 2018) and various allowances to which they are entitled are borne centrally. However, the arrangement for ministers in the House of Lords is different in that they do not receive a salary but rather an additional remuneration which cannot be quantified separately from their ministerial salaries. This total remuneration, as well as the allowances to which they are entitled, is paid by the core Department and is therefore shown in full in the figures.

Bonuses

Bonuses are based on performance levels attained and are made as part of the appraisal process. Bonuses relate to the performance in the year in which they become payable to the individual. The bonuses reported in 2018-19 relate to performance in 2017-18 and the comparative bonuses reported for 2017-18 relate to performance in 2016-17.

Ministerial pensions

Pension benefits for ministers are provided by the Parliamentary Contributory Pension Fund (PCPF). The scheme is made under statute and the rules are set out in the Ministers’ etc Pension Scheme 2015, available at http://qna.files.parliament.uk/ws-attachments/170890/original/PCPF%20MINISTERIAL%20SCHEME%20FINAL%20RULES.doc. Those ministers who are Members of Parliament may also accrue an MP’s pension under the PCPF, details of which are not included in this report. A new MP’s pension scheme was introduced from May 2015 although members who were MPs and aged 55 or older on 1 April 2013 have transitional protection to remain in the previous MP’s final salary pension scheme. Benefits for ministers are payable from State Pension age under the 2015 scheme. Pensions are re-valued annually in line with Pensions Increase legislation both before and after retirement. The contribution rate from May 2015 is 11.1% and the accrual rate is 1.775% of pensionable earnings. The figure shown for pension value includes the total pension payable to the member under both the pre- and post-2015 ministerial pension schemes.

Ministerial pensions: Cash Equivalent Transfer Value

The Cash Equivalent Transfer Value (CETV) is the actuarially assessed capitalised value of the pension scheme benefits accrued by a member at a particular point in time. The benefits valued are the member’s accrued benefits and any contingent spouse’s pension payable from the scheme. A CETV is a payment made by a pension scheme or arrangement to secure pension benefits in another pension scheme or arrangement when the member leaves a scheme and chooses to transfer the pension benefits they have accrued in their former scheme. The pension figures shown relate to the benefits that the individual has accrued as a consequence of their total ministerial service, not just their current appointment as a minister. CETVs are calculated in accordance with The Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008 and do not take account of any actual or potential reduction to benefits resulting from Lifetime Allowance Tax which may be due when pension benefits are taken.

Ministerial pensions: Real increase in the value of the CETV

This is the element of the increase in accrued pension funded by the Exchequer. It excludes increases due to inflation and contributions paid by the minister. It is worked out using common market valuation factors for the start and end of the period. Civil Service pensions

Pension benefits are provided through the Civil Service pension arrangements. From 1 April 2015 a new pension scheme for civil servants was introduced – the Civil Servants and Others Pension Scheme or alpha, which provides benefits on a career average basis with a normal pension age equal to the member’s State Pension Age (or 65 if higher). From that date all newly appointed civil servants and the majority of those already in service joined alpha. Prior to that date, civil servants participated in the Principal Civil Service Pension Scheme (PCSPS). The PCSPS has four sections: three providing benefits on a final salary basis (classic, premium or classic plus) with a normal pension age of 60; and one providing benefits on a whole career basis (nuvos) with a normal pension age of 65.

These statutory arrangements are unfunded with the cost of benefits met by monies voted by Parliament each year. Pensions payable under classic, premium, classic plus, nuvos and alpha are increased annually in line with Pensions Increase legislation. Existing members of the PCSPS who were within 10 years of their normal pension age on 1 April 2012 remained in the PCSPS after 1 April 2015. Those who were between 10 years and 13 years and 5 months from their normal pension age on 1 April 2012 will switch into alpha sometime between 1 June 2015 and 1 February 2022. All members who switch to alpha have their PCSPS benefits ‘banked’, with those with earlier benefits in one of the final salary sections of the PCSPS having those benefits based on their final salary when they leave alpha. (The pension figures quoted for officials show pension earned in PCSPS or alpha – as appropriate. Where the official has benefits in both the PCSPS and alpha the figure quoted is the combined value of their benefits in the two schemes.) Members joining from October 2002 may opt for either the appropriate defined benefit arrangement or a ‘money purchase’ stakeholder pension with an employer contribution (partnership pension account).

Employee contributions are salary-related and range between 4.6% and 8.05% for members of classic, premium, classic plus, nuvos and alpha. Benefits in classic accrue at the rate of 1/80th of final pensionable earnings for each year of service. In addition, a lump sum equivalent to three years’ initial pension is payable on retirement. For premium, benefits accrue at the rate of 1/60th of final pensionable earnings for each year of service. Unlike classic, there is no automatic lump sum. classic plus is essentially a hybrid with benefits for service before 1 October 2002 calculated broadly as per classic and benefits for service from October 2002 worked out as in premium. In nuvos a member builds up a pension based on his pensionable earnings during their period of scheme membership. At the end of the scheme year (31 March) the member’s earned pension account is credited with 2.3% of their pensionable earnings in that scheme year and the accrued pension is uprated in line with Pensions Increase legislation. Benefits in alpha build up in a similar way to nuvos, except that the accrual rate is 2.32%. In all cases members may opt to give up (commute) pension for a lump sum up to the limits set by the Finance Act 2004.

The partnership pension account is a stakeholder pension arrangement. The employer makes a basic contribution of between 8% and 14.75% (depending on the age of the member) into a stakeholder pension product chosen by the employee from a panel of providers. The employee does not have to contribute, but where they do make contributions, the employer will match these up to a limit of 3% of pensionable salary (in addition to the employer’s basic contribution). Employers also contribute a further 0.5% of pensionable salary to cover the cost of centrally provided risk benefit cover (death in service and ill health retirement).

The accrued pension quoted is the pension the member is entitled to receive when they reach pension age, or immediately on ceasing to be an active member of the scheme if they are already at or over pension age. Pension age is 60 for members of classic, premium and classic plus, 65 for members of nuvos, and the higher of 65 or State Pension Age for members of alpha. (The pension figures quoted for officials show pension earned in PCSPS or alpha – as appropriate. Where the official has benefits in both the PCSPS and alpha the figure quoted is the combined value of their benefits in the two schemes but note that part of that pension may be payable from different ages.)

Further details about the Civil Service pension arrangements can be found at the website https://www.civilservicepensionscheme.org.uk/.

Civil Service pensions: Cash Equivalent Transfer Value The CETV is the actuarially assessed capitalised value of the pension scheme benefits accrued by a member at a particular point in time. The benefits valued are the member’s accrued benefits and any contingent spouse’s pension payable from the scheme. A CETV is a payment made by a pension scheme or arrangement to secure pension benefits in another pension scheme or arrangement when the member leaves a scheme and chooses to transfer the benefits accrued in their former scheme. The pension figures shown relate to the benefits that the individual has accrued as a consequence of their total membership of the pension scheme, not just their service in a senior capacity to which disclosure applies.

The figures include the value of any pension benefit in another scheme or arrangement which the member has transferred to the Civil Service pension arrangements. They also include any additional pension benefit accrued to the member as a result of their buying additional pension benefits at their own cost. CETVs are worked out in accordance with The Occupational Pension Schemes (Transfer Values) (Amendment) Regulations 2008 and do not take account of any actual or potential reduction to benefits resulting from Lifetime Allowance Tax which may be due when pension benefits are taken.

Civil Service pensions: Real increase in CETV This reflects the increase in CETV that is funded by the employer. It does not include the increase in accrued pension due to inflation, contributions paid by the employee (including the value of any benefits transferred from another pension scheme or arrangement) and uses common market valuation factors for the start and end of the period.

Fair pay disclosures

audited information Reporting bodies are required to disclose the relationship between the remuneration of the highest-paid director in their organisation and the median remuneration of the organisation’s workforce.

The banded remuneration of the highest paid director in BEIS in the financial year 2018-19, including extrapolation to the full year of any pay increases during the year plus any bonuses, was £185,000 to £190,000 (2017-18: £180,000 to £185,000). This was 4.81 times (2017-18: 4.91) the median remuneration of the workforce, which was £38,971 (2017-18: £37,200).

In 2018-19 one person (2017-18: one) received remuneration in excess of the highest paid director. Remuneration ranged from £18,200 to £194,747 (2017-18: £18,200 to £204,992).

Total remuneration includes salary, non-consolidated performance-related pay and benefits-in-kind. It does not include severance payments, employer pension contributions and the cash equivalent transfer value of pensions. Fee entitlements for non-executive board members

**audited information**

The table below shows the fee entitlements for non-executive directors who were members of the Departmental Board in 2018-19.

| Non-executive member | Fee entitlement for 2018-19 | Fee entitlement for 2017-18 | |-----------------------|-----------------------------|-----------------------------| | Archie Norman | 20-25 | 20-25 | | Professor Dame Ann Dowling (until 31 May 2018) | 5-10 | 20-25 | | Dame Carolyn McCall | 15-20 | 15-20 | | Charles Randell (until 30 June 2018) | 5-10 | 20-25 | | Kathryn Parsons | 15-20 | 15-20 | | Leena Nair (from 25 June 2018) | 15-20 | - | | Nigel Boardman (from 25 June 2018) | 15-20 | - | | Stephen Carter | 15-20 | 15-20 | | Stuart Quickenden | 15-20 | 15-20 |

1 Full year equivalent fee entitlement for 2018-19 is 20-25. 2 Full year equivalent fee entitlement for 2018-19 is 20-25; fee entitlement waived. 3 Full year equivalent fee entitlement for 2018-19 is 20-25. 4 Full year equivalent fee entitlement for 2018-19 is 20-25. 5 Fee entitlement waived. Statement of Parliamentary Supply

**audited information**

In addition to the primary statements prepared under IFRS, the Government Financial Reporting Manual (FReM) requires BEIS to prepare a Statement of Parliamentary Supply (SoPS) and supporting notes. They show resource and capital outturn against the Supply Estimate presented to Parliament, in respect of each budgetary control limit.

**Summary of resource and capital outturn 2018-19**

| SoPS note | Estimate | Outturn | 2018-19 | 2017-18 restated | |-----------|----------|---------|---------|------------------| | | Voted | Non-Voted | Total | Voted | Non-Voted | Total | Voted | Non-Voted | Total | Voted | Non-Voted | Total | Voted | Non-Voted | Total | | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | | Departmental Expenditure Limit | | | | | | | | | | | | | | | | | - Resource 1.1 | 2,966,688 | (1,532,275) | 1,434,413 | 2,702,137 | (1,455,648) | 1,246,489 | 264,551 | 1,714,006 | | - Capital 1.2 | 11,496,267 | - | 11,496,267 | 10,813,932 | - | 10,813,932 | 682,335 | 10,391,920 | | Annually Managed Expenditure | | | | | | | | | | | | | | | | | - Resource 1.1 | (90,019,664) | 352,000 | (89,667,664) | (106,184,219) | 319,330 | (105,864,889) | 16,164,555 | 75,124,046 | | - Capital 1.2 | 187,481 | (142,400) | 45,081 | (274,854) | (141,811) | (416,665) | 462,335 | (1,196,772) | | Total Budget | (75,369,228) | (1,322,675) | (76,691,903) | (92,943,004) | (1,278,129) | (94,221,133) | 17,573,776 | 86,033,200 | | Total | (75,369,228) | (1,322,675) | (76,691,903) | (92,943,004) | (1,278,129) | (94,221,133) | 17,573,776 | 86,033,200 | | Total Resource 1.1 | (87,052,976) | (1,180,275) | (88,233,251) | (103,482,082) | (1,136,318) | (104,618,400) | 16,429,106 | 76,838,052 | | Total Capital 1.2 | 11,683,748 | (142,400) | 11,541,348 | 10,539,078 | (141,811) | 10,397,267 | 1,144,670 | 9,195,148 | | Total | (75,369,228) | (1,322,675) | (76,691,903) | (92,943,004) | (1,278,129) | (94,221,133) | 17,573,776 | 86,033,200 |

Voted Budgets are those approved by Parliament through the Supply Estimates process. Non-voted Budgets generally comprise CFERs (Consolidated Fund Extra Receipts) that represent operating income or expenditure financed directly from the Consolidated Fund as a standing service or from the National Insurance Fund. Non-voted expenditure does not require additional Parliamentary authority, but is included within Budgets set by HMT for completeness.

### Net cash requirement 2018-19

| SoPS Note | Estimate | Outturn | Voted outturn compared with Estimate: saving / (excess) | Outturn | |-----------|----------|---------|--------------------------------------------------------|---------| | | £'000 | £'000 | £'000 | £'000 | | Net cash requirement | 3 | 16,406,161 | 13,787,150 | 2,619,011 | 13,616,211 |

### Administration costs 2018-19

| Estimate | Outturn | Voted outturn compared with Estimate: saving / (excess) | Outturn | |----------|---------|--------------------------------------------------------|---------| | | £'000 | £'000 | £'000 | | Total administration costs | 485,766 | 460,580 | 25,186 | 383,295 |

Figures in the areas outlined in bold are voted totals subject to Parliamentary control. In addition, although not a separate voted limit, any breach of the administration budget will also result in an excess vote.

Explanations of the significant variances between Estimate and outturn are given in the Financial review on pages 36 to 44.

Prior year outturn is restated to reflect the changes as result of the Machinery of Government changes - see note 27.

The notes on pages 91 to 99 form part of these accounts.

### Notes to the Statement of Parliamentary Supply

**SoPS 1.1. Analysis of net resource outturn by section**

## | Administration | Programme | 2018-19 | 2017-18 restated | |----------------|-----------|---------|------------------| | Gross | Income | Net | Gross | Income | Net | Total | Net Total | Estimate | Net total compared with Estimate, adjusted for virements | Total | | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | £'000 | | **Spending in departmental expenditure limit (DEL) by section** | | | | | | | | | | | | **Voted** | | | | | | | | | | | | A Deliver an ambitious industrial strategy | - | - | - | 187,353 | (5,067) | 182,286 | 182,286 | 169,941 | (12,345) | - | 377,130 | | B Maximise investment opportunities and bolster UK interests | - | - | - | 69,518 | 1,187 | 70,705 | 70,705 | 66,700 | (4,005) | - | 40,218 | | C Promote competitive markets and responsible business practices | 798 | - | 798 | 110,537 | (16,892) | 93,645 | 94,443 | 103,790 | 9,337 | 9,337 | 86,230 | | D Delivering affordable energy for households and businesses | - | - | - | 43,156 | 999 | 44,155 | 44,155 | 43,018 | (1,137) | - | 32,381 | | E Ensuring that our energy system is reliable and secure | - | - | - | 12,084 | (7,328) | 4,756 | 4,756 | 11,485 | 6,729 | 6,729 | 4,201 | | F Taking action on climate change and decarbonisation | - | - | - | 24,831 | (2) | 24,829 | 24,829 | 36,016 | 11,187 | 11,187 | 91,076 | | G Managing our energy legacy safely and responsibly | - | - | - | 252,617 | (747) | 251,870 | 251,870 | 256,393 | 4,523 | 531 | 265,752 | | H Science and Research | - | - | - | 4,608 | - | 4,608 | 4,608 | 9,013 | 4,405 | 4,405 | 5,088 | | I Capability | 382,157 | (31,991) | 350,166 | 47,273 | (3,591) | 43,682 | 43,682 | 444,315 | 50,467 | 6,887 | 320,301 | | J Government as Shareholder | 3,890 | (9) | 3,882 | 184,383 | (125,446) | 58,937 | 62,819 | 118,625 | 55,806 | 52,819 | 112,900 | | K Deliver an ambitious industrial strategy (ALB) net | - | - | - | 15,147 | - | 15,147 | 15,147 | 17,700 | 2,553 | 2,553 | 21,305 | | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z | AA | |---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---| | Promote competitive markets and responsible business practices (ALB) net | 8,783 | 45,852 | - | - | - | - | - | - | - | - | - | - | - | - | - | | Ensuring that our energy system is reliable and secure (ALB) net | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Taking action on climate change and decarbonisation (ALB) net | 3,353 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Managing our energy legacy safely and responsibly (ALB) net | 6,912 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Science and Research (ALB) net | 5,547 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Capability (ALB) net | 30,475 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Government as Shareholder (ALB) net | 52 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | NDA and SLC expenditure (ALB) net | 50,612 | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Total resource DEL voted spend | 492,579 | (31,999) | 460,580 | 2,398,444 | (1,56,887) | 2,241,557 | - | - | - | - | - | - | - | - | - | | Non-voted | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Nuclear Decommissioning Authority (CFER) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Nuclear Safeguards Development (CFER) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Total resource DEL non-voted spend | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Total resource DEL spend | 492,579 | (31,999) | 460,580 | 2,396,169 | (1,455,648) | 1,434,413 | - | - | - | - | - | - | - | - | - | | Spending in annually managed expenditure (AME) by section | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Voted | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Deliver an ambitious industrial strategy | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Maximize investment opportunities and bolster UK interests | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Promote competitive markets and responsible business practices | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Ensuring that our energy system is reliable and secure | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Taking action on climate change and decarbonisation | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Managing our energy legacy safely and responsibly | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Non-voted | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Nuclear Decommissioning Authority (CFER) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Nuclear Safeguards Development (CFER) | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Total resource DEL non-voted spend | - | - | - | - | - | - | - | - | - | - | - | - | - | - | - | | Total resource DEL spend | 492,579 | (31,999) | 460,580 | 2,396,169 | (1,455,648) | 1,434,413 | - | - | - | - | - | - | - | - | - |

-
-

Taking action on climate change and decarbonisation (ALB) net

Managing our energy legacy safely and responsibly (ALB) net

Science and Research (ALB) net

AG

AH

AI

AJ

AK

-
-

Nuclear Decommissioning Authority

Promote competitive markets and responsible business practices (ALB) net

AL

AM

Total resource AME voted spend

(31,999)

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

(105,792,424)

326,414

326,414

-

(106,118,838)

57

(101,791,292)

93,768

1

41,299

(2,022,249)

(2,971,284)

(21,100)

817,898

7,558

(12,990)

205,985

460,580 (103,396,255)

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

(1,682,725)

(72,465)

(7,084)

(7,084)

-

(65,381)

-
-
-
-
-
-
-
-
-

(6,523)

-
-

(105,078,980)

(105,864,889)

319,330

319,330

-

(106,184,219)

57

(101,791,292)

93,768

1

41,299

(2,022,249)

(2,971,284)

(21,100)

817,898

1,035

(12,990)

205,985

Explanations of the significant variances between the Outturn and Estimate are included in the Financial review on pages 36 to 44.

492,579

-

Total resource AME spend

Total resource DEL and AME spend

-
-

Government as Shareholder

AO

Total resource AME non-voted spend

Managing our energy legacy safely and responsibly (CFER)

AN

-
-
-

Government as Shareholder (ALB) net

Non-voted

-

Capability (ALB) net

-
-
-

Renewable Heat Incentive

Government as Shareholder

AE

-
-

Deliver an ambitious industrial strategy (ALB) net

Capability

AD

AF

Science and Research

AC

(104,618,400)

(105,864,889)

319,330

319,330

-

(106,184,219)

57

(101,791,292)

93,768

1

41,299

(2,022,249)

(2,971,284)

(21,100)

817,898

1,035

(12,990)

205,985

(88,233,251)

(89,667,664)

352,000

352,000

-

(90,019,664)

-

(98,950,000)

94,671

2

12,848

1,950,631

6,000,000

11,700

900,000

33,775

8,344

100,966

16,385,149

16,197,225

32,670

32,670

-

16,164,555

(57)

2,841,292

903

1

(28,451)

3,972,880

8,971,284

32,800

82,102

32,740

21,334

(105,019)

-

16,385,149

16,197,225

32,670

32,670

-

16,164,555

-

2,841,292

903

1

-

3,839,410

8,971,284

32,800

82,102

28,696

21,277

76,838,052

75,124,046

259,815

259,815

-

74,864,231

87

69,911,856

(25,628)

-

94,631

1,507,140

3,558,227

4,867

687,275

(73,714)

13,557

45,578

Accountability report 93

### SoPS 1.2. Analysis of net capital outturn by section

| Spending in Departmental Expenditure Limit (DEL) by section | 2018-19 Outturn | 2017-18 restated Outturn | Net total compared with Estimate, adjusted for virements | |-------------------------------------------------------------|-----------------|--------------------------|--------------------------------------------------------| | **Gross** | **Income** | **Net** | **Net** | **Net** | | £'000 | £'000 | £'000 | £'000 | £'000 | | **Voted** | | | | | | A Deliver an ambitious industrial strategy | 220,461 | (275,067) | (54,606) | (59,258) | (4,652) | 13,667 | 142,364 | | B Maximise investment opportunities and bolster UK interests | 243,957 | - | 243,957 | 244,059 | 102 | 102 | 289,791 | | C Promote competitive markets and responsible business practices | 2,682 | - | 2,682 | 6,469 | 3,787 | 3,787 | 2,375 | | D Delivering affordable energy for households and businesses | 32,718 | - | 32,718 | 32,741 | 23 | 23 | 43,633 | | E Ensuring that our energy system is reliable and secure | (626) | - | (626) | (606) | 20 | 20 | 60 | | F Taking action on climate change and decarbonisation | 75,778 | (2,657) | 73,121 | 92,164 | 19,043 | 19,043 | 51,578 | | G Managing our energy legacy safely and responsibly | 4,572 | (294) | 4,278 | 7,309 | 3,031 | 3,031 | 7,944 | | H Science and Research | 628,196 | (65,019) | 563,177 | 674,599 | 111,422 | 52,831 | 2,634,812 | | I Capability | 30,335 | (30) | 30,305 | (103,592) | (133,897) | - | 18,777 | | J Government as Shareholder | 233,876 | (58,005) | 175,871 | 335,238 | 159,367 | 65,742 | 38,701 | | K Deliver an ambitious industrial strategy (ALB) net | - | - | - | - | - | - | 957,626 | | L Promote competitive markets and responsible business practices (ALB) net | 1,059 | - | 1,059 | 1,180 | 121 | 121 | 1,377 | | M Ensuring that our energy system is reliable and secure (ALB) net | - | - | - | - | - | - | - | | Section | Voted Spend | Non-voted Spend | Total Capital DEL Spend | |------------------------------------------------------------------------|-------------|-----------------|-------------------------| | N Taking action on climate change and decarbonisation (ALB) net | 255 | - | 11,215,004 | | O Managing our energy legacy safely and responsibly (ALB) net | 9,503 | - | 10,813,932 | | P Science and Research (ALB) net | 7,530,042 | - | 11,496,267 | | Q Capability (ALB) net | 2,482 | - | 682,335 | | R Government as Shareholder (ALB) net | 197,015 | - | 334,300 | | S NDA and SLC expenditure | 2,002,699 | - | 2,051,013 | | Total capital DEL voted spend | 11,215,004 | (401,072) | 10,813,932 | | Total capital DEL non-voted spend | - | - | - | | Total capital DEL spend | 11,215,004 | (401,072) | 10,813,932 |

Spending in Annually Managed Expenditure (AME) by section

Voted

| Section | Voted Spend | Non-voted Spend | Total Capital DEL Spend | |------------------------------------------------------------------------|-------------|-----------------|-------------------------| | W Deliver an ambitious industrial strategy | - | - | - | | X Maximise investment opportunities and bolster UK interests | - | - | - | | Y Promote competitive markets and responsible business practices | - | - | - | | Z Ensuring that our energy system is reliable and secure | - | - | - | | AA Taking action on climate change and decarbonisation | - | - | - | | AB Managing our energy legacy safely and responsibly | 35,412 | - | 611,792 | | AC Science and Research | 1,212 | - | 864 | | AD Capability | - | - | - | | AE Government as Shareholder | 6,240,000 | (6,360,000) | (1,909) | | | Renewable Heat Incentive | | | | | | |---|--------------------------|---|---|---|---|---| | AG | Deliver an ambitious industrial strategy (ALB) net | (16,387) | - | (16,387) | (7,460) | 8,927 | 8,927 | (3,474) | | AH | Promote competitive markets and responsible business practices (ALB) net | - | - | - | - | - | - | - | | AI | Managing our energy legacy safely and responsibly (ALB) net | - | - | - | - | - | - | - | | AJ | Science and Research (ALB) net | (59,692) | - | (59,692) | - | 59,692 | 53,009 | (63,845) | | AK | Capability (ALB) net | - | - | - | - | - | - | - | | AL | Government as Shareholder (ALB) net | (115,399) | - | (115,399) | (150,000) | (34,601) | - | (119,122) | | **Total capital AME voted spend** | 6,085,146 | (6,360,000) | (274,854) | 187,481 | 462,335 | 461,746 | 424,306 | | **Non-voted** | | | | | | | | | AN | Managing our energy legacy safely and responsibly (CFER) | - | (141,811) | (141,811) | (142,400) | (589) | - | - | | AK | Government as Shareholder | - | - | - | - | - | - | - | | AL | Government as Shareholder (CFER) | - | - | - | - | - | - | (1,621,078) | | **Total capital AME non-voted spend** | - | (141,811) | (141,811) | (142,400) | (589) | - | (1,621,078) | | **Total capital AME spend** | 6,085,146 | (6,501,811) | (416,665) | 45,081 | 461,746 | 461,746 | (1,196,772) | | **Total capital DEL and AME spend** | 17,300,150 | (6,902,883) | 10,397,267 | 11,541,348 | 1,144,081 | 1,144,081 | 9,195,148 |

Explanations of the significant variances between the Outturn and Estimate are included in the Financial review on pages 36 to 44.

The increase in spend in 2016-17 and 2017-18 against Science and Research Capital DEL and decrease against Science and Research (ALB) Capital DEL reflects the reclassification of expenditure for the Higher Education Funding Council for England (HEFCE) for Science and Research following the Machinery of Government transfer of HEFCE to the Department for Education. With effect from 2018-19 this expenditure falls under Research England as part of UKRI, under Science and Research (ALB). SoPS 2: Reconciliation of net resource outturn to net operating expenditure

| Note | 2018-19 Outturn £’000 | 2017-18 restated Outturn £’000 | |------|------------------------|-------------------------------| | Total resource outturn in Statement of Parliamentary Supply | SoPS 1.1 | (104,618,400) | 76,838,052 | | Add: | | | | | NDA remedial decommissioning costs which are capital in budgets but taken through the SoCNE | | 2,002,699 | 2,051,013 | | Capital Grants | | 1,507,472 | 1,351,725 | | Share of profit/loss of joint ventures and associates | | (187,156) | (951) | | Other non-budget | | (43,793) | 72,174 | | Share of minority interest | | - | 5,263 | | Research and Development costs | | 7,405,902 | 6,831,269 | | Less: | | | | | Non-budgetary income | | - | (103,858) | | Profit on disposal of shares | | - | (190,915) | | Non-budget, non voted items in respect of BIS (Postal Services Act 2011) Company Limited and B Company Limited | | (42,930) | (74,305) | | Expected return on pension scheme assets | | (40,825) | (36,510) | | Gains/(losses) on defined benefit scheme | | - | (5,219) | | NDA income scored in SOPS only | | 126,783 | 114,345 | | Capital Income in SOCNE | | (54,521) | (10,765) | | Research and Development income | | (488,889) | (411,290) | | Other: | | | | | Impact of intra group transactions | | 60,583 | (26,135) | | Other differences | | 12,814 | 6,313 | | **Net Expenditure for the period in Consolidated Statement of Comprehensive Net Expenditure** | | **(94,360,261)** | **86,410,206** |

The prior year comparatives present the Net Operating Expenditure as reported at 31 March 2018. This is restated following a Machinery of Government change – see note 27.

### SoPS 3: Reconciliation of net resource outturn to net cash requirement

| | Estimate £'000 | Outturn £'000 | 2018-19 Net total Outturn compared with Estimate: saving/(excess) £'000 | |--------------------------------|----------------|---------------|---------------------------------------------------------------------| | Resource Outturn | (88,233,251) | (104,618,400) | 16,385,149 | | Capital Outturn | 11,541,348 | 10,397,267 | 1,144,081 | | | (76,691,903) | (94,221,133) | 17,529,230 |

**Accruals to cash adjustments:**

**Adjustments to remove non-cash items:**

- **Depreciation**: 975, 161,356, (160,381)
- **New provisions and adjustments to previous provisions**: (133,466), (10,253), (123,213)
- **Other non-cash items**: 17,168, (29,165), 46,333

**Adjustments for ALBs**

- **Remove voted resource and capital**: 79,063,062, 95,136,699, (16,073,637)
- **Add cash in grant-in-aid**: 11,593,405, 10,978,148, 615,257
- **Add share purchase and loans**: 217,886, 217,886
- **Less share capital repayment**: (23,861), 23,861

**Adjustments to reflect movements in working balances:**

- **Increase/(decrease) in receivables**: 920,059, (145,094), 1,065,153
- **(Increase)/decrease in payables**: 150,452, (150,452)
- **Use of provisions**: 314,186, 283,348, 30,838
- **Financial guarantees called in**: 10,637, (10,637)

**Non-voted budget items:**

- **Removal of non-voted budget items**: 1,322,675, 1,278,130, 44,545

**Net cash requirement**: 16,406,161, 13,787,150, 2,619,011 SoPS 4: Income payable to the Consolidated Fund

SoPS 4.1: Analysis of income payable to the Consolidated Fund

In addition to income retained, the following income was payable to the Consolidated Fund. Cash receipts are shown in italics.

| Income Description | 2018-19 Income | 2018-19 Outturn Receipts | 2017-18 Income | 2017-18 Outturn Receipts | |-------------------------------------------|----------------|--------------------------|----------------|--------------------------| | Operating income of the NDA | 654,497 | 654,497 | 851,538 | 863,000 | | Other operating income | 193,362 | 193,362 | 1,821,334 | 1,821,334 | | Income from coal pension surpluses | 617,400 | 617,400 | - | - | | **Total income payable to the Consolidated Fund** | **1,465,259** | **1,465,259** | **2,672,872** | **2,684,334** |

In the prior year there was £1.62 billion paid over to the Consolidated Fund in respect of the sale of the Green Investment Bank.

SoPS 4.2: Consolidated Fund income

Consolidated Fund income shown in SoPS note 4.1 above does not include any amounts collected by the Department where it was acting as agent for the Consolidated Fund rather than as principal. Full details of income collected as agent for the Consolidated Fund are in the department’s Trust Statement published separately from but alongside these financial statements. Details are also provided in the individual accounts of the Insolvency Service of items which are not included above. Parliamentary accountability disclosures

Losses and special payments

**audited information**

The disclosures in this note are in accordance with Managing Public Money, the official guidance on handling public funds.

**Losses statement**

| | Core and agencies | 2018-19 | Departmental Group | Core and agencies | 2017-18 | Departmental Group | |----------------------|-------------------|---------|--------------------|-------------------|---------|--------------------| | Total number of losses | 8,955 | 9,719 | 6,396 | 8,521 | | RPS receivable impairment (£m) | 358 | 358 | 267 | 267 | | Other losses (£m) | 27 | 28 | 15 | 19 | | Total value of losses (£m) | 385 | 386 | 282 | 286 |

Details of cases over £300,000: claims abandoned: core Department

From 1 April 2018, the responsibility for Redundancy Payment Service (RPS) was transferred from the core Department to the Insolvency Service (INSS).

Redundancy Payment Service (RPS) receivable impairment: most of the redundancy payments made from the National Insurance Fund (NIF) are in respect of employees of insolvent companies. Repayment of debt is recovered from the sale of the assets of the insolvent company. A small proportion of the debt (12%) is preferential, and as such has a higher recovery rate. HMRC record the impairment of the RPS receivable in NIF accounts. The RPS receivable impairment for 2018-19 is £358 million (2017-18: £267 million).

Details of cases over £300,000: constructive losses: core Department

The core Department holds onerous leases for properties on the department’s estate for which £113 million has been provided as at 31 March 2019 (31 March 2018: £126 million); payments in 2018-19 totalled £26.6 million (2017-18: £15.2 million).

The core Department paid £0.7 million to a former supplier of shared central services (finance, human resources etc) for early contract termination. The supplier had been contracted to supply these services to a predecessor department (the former Department of Energy and Climate Change) but supply has now been concentrated on a single provider. Special payments

Special payments include extra-contractual, ex gratia, compensation and special severance payments.

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | | Core and agencies | Departmental Group | Core and agencies | Departmental Group | | Total number of special payments | 6 | 13 | 17 | 21 | | Total value of special payments (£m) | - | 2 | 60 | 60 |

Details of cases over £300,000

Special payments includes a fine of £380,000, associated costs of £96,753 and victim surcharge of £170 paid by Sellafield Ltd for safety breaches relating to equipment used for the processing of plutonium on 5 February 2017, following an investigation by the Office for Nuclear Regulation (ONR).

Special payments includes £1 million of interest on the corporation tax payment paid by UK Research and Innovation (UKRI) to HMRC in March 2019 with regard to the chargeable gains that arose on the transfer of assets from the legacy Councils into UKRI. Additional budget was received from HM Treasury to cover this payment and it did not reduce the funding available for science in the year.

Gifts and hospitality

Managing Public Money states that annual reports should include a note on gifts made by departments if their total value exceeds £300,000. Gifts with a value of more than £300,000 should be noted individually. During 2018-19, the Department did not give, nor did it receive, any reportable gifts above £300,000.

The core Department’s gifts and hospitality policy expects the highest level of standards of behaviour from civil servants when deciding whether to accept or decline gifts and hospitality offered, as set out within the Civil Service Code and Managing Public Money. There are also constraints in giving hospitality to ensure that claims are proportionate, necessary, justifiable, modest, and defensible under public scrutiny and delivering value for money from the use of public funds.

The policy applies to BEIS’s Civil Service staff, contractors, agents, and non-executive directors who are bound by the Civil Service Code. This policy does not apply to Ministers and special advisers who are covered under the Ministerial Code and Cabinet Office Code of Conduct for Special Advisers respectively. Additionally, Special Advisors gifts and hospitality registers are published on a quarterly basis, including nil returns. Remote Contingent Liabilities

**audited information**

The Departmental Group has entered into the following contingent liabilities by offering guarantees, indemnities or letters of comfort. None of these is a contingent liability within the meaning of IAS 37, as the likelihood of a transfer of economic benefit in settlement is too remote. However, they are required to be disclosed under the requirements of the Government Financial Reporting Manual and Managing Public Money. Detail of quantifiable and unquantifiable remote contingent liabilities is presented in the sections below.

**Quantifiable**

Measurement of quantifiable contingent liabilities is carried out following the requirements of IAS 37, given that the reporting requirements of Managing Public Money. Managing Public Money requires that the full potential costs of such contracts be reported to Parliament.

| 1 April 2018 | Increase / (Decrease) in year | Liabilities crystallised in year | Obligations expired in year | 31 March 2019 | Amount reported to Parliament by Departmental Minute | |--------------|-------------------------------|---------------------------------|-----------------------------|---------------|-----------------------------------------------------| | £m | £m | £m | £m | £m | £m | | The core Department has indemnified Cornwall Council for any liability relating to the European Regional Development Fund (ERDF) that might arise from the transfer of Wave Hub due to (a) any breach of the ERDF Funding Agreements which occurred on or before the transfer date of 31 March 2017 and (b) any action or omission by the core Department or Wave Hub in relation to the ERDF Funding Agreements prior to the transfer which leads to finding of an Irregularity by any competent authority. | 18 | - | - | - | 18 | 18 | | The core Department has indemnified the Coal Authority against potential claims arising from remunerated advisory work undertaken for other public sector bodies where settlement exceeds the Authority’s professional indemnity insurance. | - | 3 | - | - | 3 | - | | **Total** | **18** | **3** | **-** | **-** | **21** | **18** | Unquantifiable remote contingent liabilities: core Department

Statutory guarantees

- Under section 9 of the British Aerospace Act 1980, the government is liable to discharge any outstanding liability of BAE Systems plc which vested in the company on 1 January 1981 in the event of its being wound up other than for the purpose of reconstruction or amalgamation.

Statutory indemnities

- Indemnities have been given to indemnify UK Atomic Energy Authority to cover certain indemnities provided by the Authority to carriers and British Nuclear Fuels plc against certain claims for damage caused by nuclear matter in the course of carriage.
- Indemnities have been given to bankers of the Insolvency Service against certain liabilities arising in respect of non-transferable “account payee” cheques due to insolvent estates and paid into the Insolvency Service’s account.
- Indemnities have been given to the police at the Police Information Technology Organisation (Home Office) by the core Department and Insolvency Service to cover any liabilities which they might incur in providing the Criminal Enforcement Team (formerly part of the core Department) with access to data from the Police National Computer.
- Indemnity has been given to National Grid’s liabilities with regards to the interconnector linking the UK and France.

Intellectual property

- A liability to the European Patent Office could arise under Article 40 of the European Patent Convention of 1973 as the UK is one of the contracting states.
- A liability to the World Intellectual Property Organisation could arise under Article 57 of the Patent Cooperation Treaty as the UK is one of the contracting states.

Data usage indemnities

- An indemnity has been provided to Pöyry PLC relating to the use of their yield curve data for the sale of Green Investment Bank. The core Department has indemnified Pöyry PLC for any liability that occurs as a result of using their information in the sale process that may be brought by bidders in relation to the transaction.

Legal costs

- A contingent liability exists in relation to ongoing legal cases. The cost is dependent on the outcome of cases which currently cannot be reliably estimated.
- Under an agreement with the Financial Reporting Council (FRC), if the amount held in their legal costs fund falls below £1 million in any year, an additional grant will be made to cover legal costs subsequently incurred in that year.

Indemnities against personal liability

- Indemnities have been given to the directors appointed by the core Department to wholly owned subsidiaries. These indemnities are against personal liability following any legal action against the companies.
- Indemnities have been provided to directors appointed to the Low Carbon Contracts Company Limited and Electricity Settlements Company Limited against personal liability following any legal action against the companies, to be triggered only after all other means have been excluded i.e. company and directors’ insurance (cover limit of £100 million) and recovery of costs through their levies.
- Indemnities have been provided to the Low Carbon Contracts Company Limited and Electricity Settlements Company Limited in respect of their officers, to be triggered only after all other means have been excluded i.e. company and directors’ insurance (cover limit of £100 million) and recovery of costs through their levies.
- Indemnities have been provided to trustees of the Nuclear Liabilities Fund appointed by the Secretary of State against personal liability in the event of legal action against the Fund. • Indemnities have been provided to trustees of the Nuclear Liabilities Fund appointed by British Energy (now EDF Energy) against personal liability in the event of legal action against the Fund, to be triggered only in the event of failed recourse to indemnities from EDF Energy.

• Indemnities have been provided to the Official Receiver relating to their actions as administrator of SSI Redcar with respect to administration of the site.

• Indemnities have been provided to the Oil and Gas Authority in respect of certain liabilities that could arise from the actions or omissions of its directors and otherwise arising from a director holding or having held office in the company.

• Indemnities have been provided to the MCS Service Company Limited and trustees of the MCS Charitable Foundation for any liability that might arise as a result of actions taken and decisions made for which the core Department was ultimately responsible prior to transfer to the Company and Charitable Foundation of responsibility for the Microgeneration Certification Scheme (MCS) in April 2018.

Insurance claims • A statutory liability will arise in the event of a nuclear accident in the UK for third-party claims in excess of the operator’s liability.

• A contingent liability exists in relation to Incidents/Accidents Insurance claims for exposure to ionising radiation pursued outside the existing UK Atomic Energy Authority insurance scheme.

• The core Department has indemnified Elexon Limited against third party claims relating to the design and/or implementation of the Contracts for Difference and Capacity Markets settlement systems which are not covered by insurance and/or guarantees by their sub-contractors.

Losses or damages under agreements • An indemnity has been provided for any losses or damages caused to other parties to the Energy Research Partnership consortium agreement.

Environmental clean-up • A contingent liability exists in relation to the costs of retrieving and disposing of sealed radioactive sources in the event that a company keeping such sources becomes insolvent under the High Activity Sealed Sources (HASS) Directive: Council Directive 2003/122/EURATOM.

• A contingent liability arises in relation to the remediation of land contaminated by a nuclear occurrence as the Secretary of State is deemed to be the appropriate person to bear responsibility under section 9 of The Radioactive Contaminated Land (Modification of Enactments) (England) (Amendment) Regulations 2007 SI 2007/3245.

• A constructive obligation was created in 2002 when the government undertook to underwrite the Nuclear Liabilities Fund in respect of uncontracted and decommissioning liabilities of British Energy (now EDF Energy Nuclear Generation Limited) to the extent that the assets of the Fund fall short. The undiscounted estimated liability as at 31 March 2019 of £20.9 billion (31 March 2018: £20.5 billion) has a present value of £22.3 billion (31 March 2018: £57.8 billion) using the revised approach to discounting at March 2019 described at note 1. The value of the Fund is £9.4 billion (31 March 2018: £9.3 billion) and is expected to increase in the future from investment returns. It is hard to quantify the extent to which the net position of the Fund might represent a contingent liability or contingent asset given the high level of uncertainty relating to estimation of cash outflows and investment returns over a future period exceeding 100 years. The department does not consider it to be either a contingent liability or contingent asset as at 31 March 2019.

• Under the United Nations Convention on the Law of the Sea (UNCLOS) 1982, OSPAR decision 98/3, the Energy Act 2004 and the Petroleum Act 1998, the department would become responsible for decommissioning most oil, gas and renewable energy installations in the event that operators are unable to fulfil their decommissioning commitments. EU Exit

- In July 2018, the UK Government announced an extension of its guarantee of EU-funded projects after the UK has left the EU. The guarantee was originally announced in 2016. The guarantee now covers the following: a. The full Multiannual Financial Framework allocation for structural and investment funds over the 2014-20 funding period, with payments to beneficiaries made up to the end of 2023; b. The payment of awards where UK organisations successfully bid directly to the European Commission on a competitive basis for EU funding projects while we remain in the EU (e.g. before Exit day), for the lifetime of the project; c. The payment of awards where UK organisations successfully bid to the European Commission on a competitive basis to participate as a 3rd country after Exit, and until the end of 2020, for the lifetime of the project; and, d. The current level of agricultural funding under CAP Pillar 1 until 31 December 2020.

- The financial settlement was agreed in principle by both the UK and EU, as set out in the draft Withdrawal Agreement of 25th November 2018. The guarantee will therefore only be called in the event that the Withdrawal Agreement is not ratified in the case of no deal, and UK organisations are unable to access EU funding.

- On 29 March 2017, the UK Government submitted its notification to leave the EU in accordance with Article 50. The triggering of Article 50 started a two-year negotiation process between the UK and the EU. On 11 April 2019, the government confirmed agreement with the EU on an extension until 31 October 2019 at the latest, with the option to leave earlier as soon as a deal has been ratified. Any subsequent changes in legislation, regulation and funding arrangements are subject to the outcome of the negotiations. As a result, an unquantifiable contingent liability is disclosed. In accordance with accounting standards, no contingent assets can be recognised.

Others

- A liability could arise through non-compliance with the Cogeneration Directive (2004/8/EC) in the event of incorrect certification of combined heat and power plants by contractors of the Department.

- A contingent liability exists in respect of the risks associated with the Department assuming responsibility for uplifts in pension contributions for the UK Atomic Energy Authority’s non-active pension scheme members.

- The Secretary of State Investor Agreement (SOSIA) provides protections in certain scenarios where the Hinkley Point C nuclear plant is shut down for reasons that are political or due to certain changes in insurance arrangements or certain changes in law. Payments under the SOSIA would be expected in the first instance to be made using funds from the Supplier Obligation but in certain circumstances they could also come direct from the Secretary of State, relying on spending powers granted under the relevant Appropriation Act or, if payments were to be made over a period longer than two years, seeking a new spending power at the time. The payments could be up to around £22 billion excluding non-decommissioning operational costs that may be incurred after any shutdown. However, the liability to make payments under the SOSIA is almost entirely within the control of HM Government.

Unquantifiable remote contingent liabilities: agencies and departmental ALBs

- UK Space Agency has an unquantifiable contingent liability arising from the international (UN) convention, which requires the UK Government to be ultimately liable for third party costs from accidental damage arising from UK space activities. To manage the risk to the Government, the Outer Space Act 1986 requires licensees to indemnify HMG against any proven third party costs. In March 2015 the Outer Space Act 1986 was amended to cap the previously unlimited liability for licensed activities. The cap is set at €60 million euro for the majority of missions. This amendment came into force from 1 October 2015 and was designed to adequately balance the risk to the UK Government whilst ensuring UK space operators remain competitive internationally. There is a requirement on licensees to obtain third party liability insurance (set at €60 million euro for the majority of missions) for the duration of the licensed activity, with the UK Government a named beneficiary.

- UKRI, through STFC, collaborates with a number of other international partners in the funding, management and operation of technical facilities which are not owned by STFC. In the event of a decision to withdraw from any of these arrangements, it is likely that STFC would assist in the search for a replacement partner to ensure that technical commitments were met. The most significant international collaborations are in respect of CERN and ESO. For both of these facilities there is the possibility that STFC would be obliged to contribute to decommissioning costs arising from a decision taken to discontinue operations. The decisions to decommission are not wholly within STFC’s control.

- The NDA has non-quantifiable contingent liabilities arising from indemnities given as part of the contracts for the management of the nuclear site license companies. These indemnities are in respect of the uninsurable residual risk that courts in a country which is not party to the Paris and Brussels Conventions on third party liability in the field of nuclear energy may accept jurisdiction to determine liability in the event of a nuclear incident. Indemnities are in place in respect of Magnox, LLWR and Dounreay as set out in the relevant Parent Body Agreements. In addition, indemnities are provided to the previous Parent Body Organisations (PBOs) of Magnox and Sellafield covering the periods of their ownership.

Other potential or expected liabilities

The department has entered into the following arrangements, details of which are provided in the interests of transparency. Neither of them is a contingent liability requiring disclosure under IAS 37, the Government Financial Reporting Manual or Managing Public Money as the obligating events did not exist at the reporting date.

**Hinkley Point C Funded Decommissioning Programme (FDP) and Waste Transfer Contracts (WTCs)**

The contract with NNB Generation Company Limited (NNB) to build Hinkley Point C (HPC) nuclear power plant includes a Contract for Difference between NNB and the Low Carbon Contracts Company Ltd, an FDP and associated FDP documents including WTCs between NNB and the core Department.

The FDP and related documents including WTCs require NNB to make prudent provision for their waste and decommissioning liabilities. To meet their liabilities, the operator must set up a fund with an independent governance framework and will pay into it so that it is on track to fund the liabilities that arise from decommissioning and waste management. The fund will report annually to the Secretary of State and a full review will be conducted every five years to ensure that the fund is on track to meet all its liabilities. If it is off track, the operator will be required to take corrective action. These liabilities are strictly the operator’s responsibility and the probability of taxpayers picking up these liabilities is remote.

Alongside the FDP, the government has entered into two WTCs. These set out terms on which the government will take title to and liability for the spent fuel and intermediate level waste (ILW) from the site after decommissioning in order to dispose of the waste safely. The WTCs have generally been prepared in line with the government’s published waste transfer pricing methodology. Although the WTCs provide a default price based on today’s best estimate, they allow the waste transfer price to be set after a specified later date. The final price agreed is subject to a cap, but

4 https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/42629/3798-waste-transfer-pricing-methodology.pdf the likelihood of the future costs exceeding the agreed cap is considered remote.

**Capacity agreements**

The European Court of Justice (ECJ) ruling of 15 November 2018 has resulted in a ‘Standstill Period’ for the Capacity Market during which no State Aid (in the form of capacity payments) can be paid to capacity providers in relation to the annulled Main Scheme Approval. Electricity Settlements Company Limited (ESC), has subsequently made no capacity payments relating to Main Scheme Approval since the ruling. This means that no payments have been made in respect of the 2018/19 Delivery Year (which runs from October 2018 to September 2019). Prior to 15 November 2018, the company made total capacity payments of £175.6 million in respect of capacity agreements awarded in relation to Main Scheme Approval and Early Capacity Auction. The ECJ’s decision to annul the Main Scheme Approval did not affect the Early Capacity Auction approval, which continues to remain in place unaffected.

The company completed making all capacity payments required in relation to the Early Capacity Auction in November 2018 and, as the term of the relevant capacity agreements has now expired, no further capacity payments are due in respect of the Early Capacity Auction.

The Delivery Year for the Capacity Market runs from 1 October to 30 September of each year. The capacity payments made by ESC in respect of the last two financial years are summarised in the following table:

| Capacity Market payments | 31 March 2019 £m | 31 March 2018 £m | |--------------------------|------------------|------------------| | Main Scheme Approval (SA.35980) – Transitional Arrangement Auction 2016/2017 (Delivery Year – October 2016 to September 2017) | - | 7.4 | | Main Scheme Approval (SA.35980) - Transitional Arrangement Auction 2017/2018 (Delivery Year – October 2017 to September 2018) | 5.6 | 7.2 | | SA. 44475 – Early Capacity Auction 2017/2018 (Delivery Year – October 2017 – September 2018) | 170.0 | 206.1 | | **Total capacity payments** | **175.6** | **220.7** |

The department has responsibility for administering the settlement process. This role is undertaken by ESC. The obligation for ESC to make capacity payments only arises when the respective levy is received from licensed suppliers and the generator provides the agreed level of capacity. The potential income and payments arising from these arrangements are outlined in the following table:

| Due within 1 year £m | Due within 2 to 5 years £m | Due over 5 years £m | Total £m | Due within 1 year £m | Due within 2 to 5 years £m | Due over 5 years £m | Total £m | |----------------------|---------------------------|-------------------|----------|----------------------|---------------------------|-------------------|----------| | Capacity Market - ESC | - | - | - | 700 | 3,185 | 1,166 | 5,051 | | Income from levy - ESC| - | - | - | (700) | (3,185) | (1,166) | (5,051) | | **Total** | | | | | | | | | **Departmental Group**| - | - | - | | | | |

**Alex Chisholm** Permanent Secretary and Principal Accounting Officer 8 July 2019 The Certificate and Report of the Comptroller and Auditor General to the House of Commons

Opinion on financial statements

I certify that I have audited the financial statements of the Department for Business, Energy and Industrial Strategy (“the Department”) and of its Departmental Group for the year ended 31 March 2019 under the Government Resources and Accounts Act 2000. The Department comprises the core Department and its agencies. The Departmental Group consists of the Department and the bodies designated for inclusion under the Government Resources and Accounts Act 2000 (Estimates and Accounts) Order 2018. The financial statements comprise: The Department’s and Departmental Group’s Statements of Comprehensive Net Expenditure, Financial Position, Cash Flows, Changes in Taxpayers’ Equity; and the related notes, including the significant accounting policies. These financial statements have been prepared under the accounting policies set out within them.

I have also audited the Statement of Parliamentary Supply and the related notes, and the information in the Accountability Report that is described in that report as having been audited.

In my opinion:

• the financial statements give a true and fair view of the state of the Department’s and the Departmental Group’s affairs as at 31 March 2019 and of the Department’s net expenditure and Departmental Group’s net expenditure for the year then ended; and

• the financial statements have been properly prepared in accordance with the Government Resources and Accounts Act 2000 and HM Treasury directions issued thereunder.

Emphasis of matter – Provision for nuclear decommissioning, recognition of income for waste treatment performance obligations and Contracts for Difference (CfDs) derivatives

Without qualifying my opinion, I draw attention to the disclosures made in notes 1.26 and 19.1 to the financial statements concerning the uncertainties inherent in the nuclear decommissioning provisions. As set out in these notes, given the very long timescales involved and the complexity of the plants and materials being handled, a considerable degree of uncertainty remains over the value of the liability for decommissioning nuclear sites designated by the Secretary of State. Significant changes to the liability could occur as a result of subsequent information and events which are different from the current assumptions adopted. Note 19.1 shows the decrease in the liability during the year to 31 March 2019 arising from the changes in the long-term discount rate, underlining the uncertainty inherent in management’s estimate associated with the long timescales involved and discount rate assumptions.

I also draw attention to the disclosures made in note 1.6.2 to the financial statements concerning the recognition of income for waste treatment performance obligations within reprocessing contracts. As set out in that note the Department has accounted for the waste treatment elements of overseas reprocessing contracts on a portfolio basis alongside the waste treatment elements of other reprocessing contracts. Management have adopted this treatment as they do not consider that income recognition, in the context of the Department’s derogation from HMT Treasury to apply IFRS 15 on a prospective only basis would otherwise reflect the overall progress of the waste treatment programme.

Finally, I also draw attention to the disclosures made in notes 1.26 and 9 to the financial statements concerning the measurement of liabilities relating to CfDs. As described, the fair value of these liabilities is highly sensitive to assumptions regarding future prices and volumes, particularly in view of the long timescales involved. As disclosed in note 9, the Department has concluded that the uncertainty over the valuation of the CFD for Hinkley Point C is such that the liability does not meet the recognition criteria set out in the Conceptual Framework for Financial Reporting.

Opinion on regularity

In my opinion, in all material respects:

- the Statement of Parliamentary Supply properly presents the outturn against voted Parliamentary control totals for the year ended 31 March 2019 and shows that those totals have not been exceeded; and

- the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis of opinions

I conducted my audit in accordance with International Standards on Auditing (ISAs) (UK) and Practice Note 10 ‘Audit of Financial Statements of Public Sector Entities in the United Kingdom’. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate. Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2016. I am independent of the Department in accordance with the ethical requirements that are relevant to my audit and the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern

I am required to conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the the group’s and the Department’s ability to continue as a going concern for a period of at least twelve months from the date of approval of the financial statements. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern. I have nothing to report in these respects.

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the Accounting Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Auditor’s responsibilities for the audit of the financial statements

My responsibility is to audit, certify and report on the financial statements in accordance with the Government Resources and Accounts Act 2000. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs (UK), I exercise professional judgment and maintain professional scepticism throughout the audit. I also:

- identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the group’s and the Department’s internal control.

- evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

- evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

- obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the group financial statements. I am responsible for the direction, supervision and performance of the group audit. I remain solely responsible for my audit opinion.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

I am required to obtain evidence sufficient to give reasonable assurance that the Statement of Parliamentary Supply properly presents the outturn against voted Parliamentary control totals and that those totals have not been exceeded. The voted Parliamentary control totals are Departmental Expenditure Limits (Resource and Capital), Annually Managed Expenditure (Resource and Capital), Non-Budget (Resource) and Net Cash Requirement. I am also required to obtain evidence sufficient to give reasonable assurance that the expenditure and income recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Other Information

The Accounting Officer is responsible for the other information. The other information comprises information included in the annual report, other than the parts of the Accountability Report described in that report as having been audited, the financial statements and my auditor’s report thereon. My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon. In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard.

Opinion on other matters

In my opinion:

- the parts of the Accountability Report to be audited have been properly prepared in accordance with HM Treasury directions made under the Government Resources and Accounts Act 2000;
- in the light of the knowledge and understanding of the group and the parent and its environment obtained in the course of the audit, I have not identified any material misstatements in the Performance Report or the Accountability Report; and
- the information given in the Performance and Accountability Reports for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which I report by exception

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

• adequate accounting records have not been kept or returns adequate for my audit have not been received from branches not visited by my staff; or

• the financial statements and the parts of the Accountability Report to be audited are not in agreement with the accounting records and returns; or

• I have not received all of the information and explanations I require for my audit; or

• the Governance Statement does not reflect compliance with HM Treasury’s guidance.

Report

I have no observations to make on these financial statements.

Gareth Davies Comptroller and Auditor General National Audit Office 157-197 Buckingham Palace Road Victoria London SW1W 9SP 10 July 2019 The ExoMars rover is being built in Stevenage. It will be the first of its kind to roam around Mars and study it in depth.

## Consolidated Statement of Comprehensive Net Expenditure

for the period ended 31 March 2019

| Continuing operations | Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |-----------------------|------|------------------------------|--------------------|------------------------------|--------------------| | Income from sale of goods and services | 6.1 | (749) | (3,260) | (1,023) | (3,341) | | Total operating income | | (749) | (3,260) | (1,023) | (3,341) | | Staff costs | 3 | 330 | 1,119 | 273 | 1,025 | | Purchase of goods and services | 4.1 | 1,424 | 2,943 | 1,542 | 2,817 | | Depreciation and impairment charges | 4.2 | 55 | 607 | 91 | 666 | | Provision expense | 4.3 | 59 | (97,721) | 182 | 75,433 | | Grants | 4.4 | 12,907 | 8,280 | 11,935 | 7,545 | | Other operating expenditure | 4.5 | (4) | (45) | (6) | (89) | | Total operating expenditure | | 14,771 | (84,817) | 14,017 | 87,397 | | Net operating expenditure | | 14,022 | (88,077) | 12,994 | 84,056 | | Finance income | 6.2 | (214) | (251) | (184) | (350) | | Finance expense | 5 | (249) | (3,855) | (19) | (1,206) | | Contracts for difference derivatives | 9 | - | (1,991) | - | 4,102 | | Share of post-tax profits of associates and joint ventures | 13 | - | (186) | - | - | | Net expenditure for the year from continuing operations | | 13,559 | (94,360) | 12,791 | 86,602 | | Profit on disposal of Green Investment Bank | 15 | - | - | (186) | (202) | | Net expenditure for the year from discontinuing operations | 15 | - | - | - | 11 | | Net expenditure for the year | | 13,559 | (94,360) | 12,605 | 86,411 |

### Other Comprehensive Income and Expenditure

Net (gain)/loss on:

- revaluation of property, plant and equipment: - (145) - (52)
- revaluation of intangible assets: - (19) - (31)

Items that may be reclassified subsequently to net operating costs:

### Continuing operations

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | £m | £m | £m | £m | | - revaluation of investments | (35) | (63) | (114) | (165) | | - other revaluation movements | 56 | 2 | 2 | 15 | | - actuarial (gains)/losses | - | 69 | - | (123) | | - joint venture and associate other movements | - | (35) | - | - | | **Total other comprehensive net income and expenditure from continuing operations** | 21 | (191) | (112) | (356) | | **Total other comprehensive net income and expenditure from discontinuing operations** | - | - | - | 5 | | **Total other comprehensive net income and expenditure** | 21 | (191) | (112) | (351) | | **Comprehensive net expenditure for the year** | 13,580 | (94,551) | 12,493 | 86,060 |

All operations are continuing apart from those included in note 15.

Further analysis of staff costs can be found in the Staff cost note in the Accountability report on page 70.

The Notes on pages 123 to 225 form part of these Accounts.

## Consolidated Statement of Financial Position

**as at 31 March 2019**

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | 31 March 2018 restated | 1 April 2017 restated | | | £m | £m | £m | £m | £m | £m | | Non-current assets: | | | | | | | | Property, plant and equipment | 7 | 294 | 3,533 | 276 | 3,414 | 264 | 3,422 | | Investment properties | - | 117 | 23 | 145 | 31 | 151 | | Intangible assets | 8 | 14 | 167 | 9 | 145 | 6 | 103 | | Investment and loans in public bodies | 10 | 3,348 | 1,758 | 2,996 | 1,630 | 2,171 | 1,317 | | Other financial assets | 11 | 1,196 | 4,098 | 1,028 | 4,194 | 1,484 | 4,082 | | Recoverable contract costs | 12 | - | 1,620 | - | 3,346 | - | 2,870 | | Derivative financial instruments | 23 | 7 | 7 | 47 | 78 | 64 | 70 | | Investment in joint ventures and associates | 13 | - | 1,039 | - | 367 | - | 347 | | Trade and other receivables | 14 | 813 | 938 | 932 | 1,090 | 305 | 399 | | Total non-current assets | | 5,672 | 13,277 | 5,311 | 14,409 | 4,325 | 12,761 | | Current assets: | | | | | | | | Inventories | - | 37 | - | 31 | - | 33 | | Non-current assets held for sale | 15 | - | 20 | - | 15 | 1,517 | 2,609 | | Trade and other receivables | 14 | 447 | 1,568 | 544 | 1,343 | 438 | 1,301 | | Investments and loans in public bodies | 16 | 666 | 620 | 732 | 732 | 682 | 682 | | Other financial assets | 11 | - | - | 142 | 142 | 1 | 1 | | Derivative financial instruments | 23 | 17 | 17 | 31 | 31 | 31 | 42 | | Cash and cash equivalents | 17 | 1,283 | 2,088 | 1,246 | 2,034 | 1,192 | 1,819 | | Total current assets | | 2,413 | 4,350 | 2,695 | 4,328 | 3,861 | 6,487 | | Total assets | | 8,085 | 17,627 | 8,006 | 18,737 | 8,186 | 19,248 | | Note | Core Department and Agencies £m | Departmental Group £m | Core Department and Agencies £m | Departmental Group £m | Core Department and Agencies £m | Departmental Group £m | |------|---------------------------------|------------------------|---------------------------------|------------------------|---------------------------------|------------------------| | | 31 March 2019 | 31 March 2018 restated | 1 April 2017 restated | | | | | | Current liabilities: | | | | | | | | Trade payables and other | | | | | | | | liabilities | 18 | (2,908) | (5,652) | (2,283) | (4,954) | | | Provisions for liabilities and | | | | | | | | charges | 19 | (260) | (3,050) | (278) | (3,332) | | | Financial guarantees and loan | | | | | | | | commitment liabilities | 20 | (11) | (11) | (16) | (16) | | | Derivative financial instruments| 23 | (1) | (13) | - | (11) | | | Non-current liabilities held | | | | | | | | for sale | 15 | - | - | - | (1,000) | | | Total current liabilities | | (3,180) | (8,726) | (2,577) | (8,313) | | | Non-current assets plus/less | | | | | | | | net current assets/liabilities | | | | | | | | | | 4,905 | 8,901 | 5,429 | 10,424 | | | Non-current liabilities: | | | | | | | | Trade payables and other | | | | | | | | liabilities | 18 | (1,141) | (2,901) | (1,203) | (2,901) | | | Provisions for liabilities and | | | | | | | | charges | 19 | (1,920) | (131,416) | (2,176) | (237,603) | | | Financial guarantees and loan | | | | | | | | commitment liabilities | 20 | (43) | (219) | (45) | (45) | | | Derivative financial instruments| 9, 23 | (2) | (12,923) | - | (15,904) | | | Retirement benefit obligations | 21 | - | (921) | - | (686) | | | Total non-current liabilities | | (3,106) | (148,380) | (3,424) | (257,139) | | | Total assets less liabilities | | 1,799 | (139,479) | 2,005 | (246,715) | | | Taxpayers’ equity and other | | | | | | | | reserves: | | | | | | | Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------|-----------------------------|--------------------| | | £m | £m | £m | £m | £m | £m | | General fund | 1,077 (142,304) | 995 (250,098) | 1,364 (175,148) | | Revaluation reserve | 722 | 2,155 | 1,010 | 2,915 | 904 | 2,813 | | Non-current assets held for sale revaluation reserve | - | - | - | - | 15 | | Charitable funds | - | 438 | - | 314 | - | 319 | | Non-controlling interests | - | 232 | - | 154 | - | 105 | | Total equity | 1,799 (139,479) | 2,005 (246,715) | 2,268 (171,896) |

Core Department and Agencies comprise the core Department and the UK Space Agency and Insolvency Service.

The Notes on pages 123 to 225 form part of these Accounts.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019

## Consolidated Statement of Cash Flows

for the period ended 31 March 2019

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | 2018-19 | 2017-18 restated | 2018-19 | 2017-18 restated | | | £m | £m | £m | £m | | **Cash flows from operating activities** | | | | | | Net operating cost | (13,559) | 94,360 | (12,605) | (86,400) | | Net operating cost from discontinuing operations | - | - | - | (11) | | Adjustment for non-cash expenditure | (151) | (103,085) | (60) | 78,517 | | (Increase)/decrease in inventories | - | (6) | - | 2 | | (Increase)/decrease in trade and other receivables | 14 | 216 | (73) | (733) | | Less movements in receivables relating to items not passing through the Consolidated Statement of Comprehensive Net Expenditure | (71) | (71) | (7) | (7) | | Increase/(decrease) in trade payables and other liabilities | 18 | 563 | 698 | 215 | | Less movements in payables relating to items not passing through the Consolidated Statement of Comprehensive Net Expenditure | (730) | (1,531) | (54) | (294) | | Use of provisions | 19 | (284) | (3,078) | (284) | | Financial guarantees called in | 20 | (11) | (11) | (11) | | Expenditure funded by the National Insurance Fund (RPS) | 4.1 | 320 | 320 | 260 | | Payments to retirement benefit obligations | - | (144) | - | (19) | | **Net cash outflow from operating activities** | (13,707) | (12,621) | (13,279) | (11,433) | | **Cash flows from investing activities** | | | | | | Purchase of property, plant and equipment | (46) | (312) | (48) | (353) | | Purchase of intangible assets | (8) | (36) | (4) | (33) | | Proceeds of disposal of property, plant and equipment | - | 3 | 11 | 106 | | Proceeds of disposal of investment property | 20 | 20 | 11 | 11 | | Proceeds of disposal of assets held for sale | - | - | 1,753 | 1,785 | | Adjustments for proceeds from disposal of assets held for sale and other assets | - | - | (1,639) | (1,620) | | Loan redeemed from Post Office Limited | 16 | 6,360 | 6,360 | 7,168 | | Loans made to Post Office Limited | 16 | (6,240) | (6,240) | (7,198) | | Repayments of loans and investments | 33 | 855 | 22 | 431 | | Payments to the Contracts for Difference generators | 9 | - | (980) | - | | Other investments and loans made | (330) | (1,009) | (253) | (798) | | Launch investment receipts | 230 | 230 | 102 | 102 | | Note | Core Department and Agencies | 2018-19 | 2017-18 restated | |------|-----------------------------|---------|-----------------| | | £m | £m | £m | | | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | | Venture capital fund redemptions | 7 | 121 | 181 | 110 | | Venture capital fund investments | - | (235) | (8) | (121) | | Dividends from joint ventures and associates | 13 | - | 87 | - | | Disposal of joint venture and associates | - | - | - | 1 | | Investment in joint ventures and associates | 13 | - | (37) | - | | Investment in assets held for sale | - | - | (50) | (7) | | Investment in shares | (125) | - | (393) | (30) | | Repayment of shares | - | - | 7 | - | | **Net cash outflow from investing activities** | (99) | (1,173) | (338) | (997) | | **Cash flows from financing activities** | | | | | | From Consolidated Fund (supply) – current year | 14,139 | 14,139 | 13,568 | 13,568 | | Advances from the Contingencies Fund | 5 | 5 | 2 | 2 | | Repayments to the Contingencies Fund | (7) | (7) | - | - | | From the National Insurance Fund | 320 | 320 | 260 | 260 | | Payments in respect of the National Insurance Fund | 4.1 | (320) | (320) | (260) | (260) | | Issue of share capital | - | - | - | 3 | | Disposal of shares | - | 3 | - | - | | **Net financing** | 14,137 | 14,140 | 13,570 | 13,573 | | **Net increase/(decrease) in cash and cash equivalents in the period before adjustment for receipts and payments to the Consolidated Fund** | 331 | 346 | (47) | 1,143 | | Receipts due to the Consolidated Fund which are outside the scope of the Department’s activities | 1,463 | 1,465 | 2,684 | 1,655 | | Payments of amounts due to the Consolidated Fund | (1,757) | (1,757) | (2,583) | (2,583) | | **Net increase/(decrease) in cash and cash equivalents in the period after adjustment for receipts and payments to the Consolidated Fund** | 37 | 54 | 54 | 215 | | **Cash and cash equivalents opening balance** | 1,246 | 2,034 | 1,192 | 1,819 | | **Cash and cash equivalents at the end of the period** | 17 | 1,283 | 2,088 | 1,246 | 2,034 | Statement of Changes in Taxpayers’ Equity (Core Department and Agencies)

for the period ended 31 March 2019

| Note | General Fund restated £m | Revaluation reserve £m | Taxpayers’ equity restated £m | Total Reserves restated £m | |------|--------------------------|-------------------------|-------------------------------|---------------------------| | | Balance at 1 April 2017 | 1,364 | 904 | 2,268 | 2,268 | | | Net parliamentary funding – drawn down | 13,568 | - | 13,568 | 13,568 | | | Net parliamentary funding – deemed | 977 | - | 977 | 977 | | | National Insurance Fund - RPS | 4.1 | 260 | - | 260 | | | Supply (payable)/receivable adjustment | 18 | (928) | - | (928) | | | Income payable to the Consolidated Fund | (1,640) | - | (1,640) | (1,640) | | | Decrease in RPS receivables | 14 | (7) | - | (7) | | | Net expenditure for the year | (12,605) | - | (12,605) | (12,605) | | | Non-Cash Adjustments: | | | | | | | Auditors’ remuneration | 4.1 | 1 | - | 1 | | | Movements in Reserves: | | | | | | | Other comprehensive net expenditure for the year | - | 112 | - | 112 | | | Transfers between reserves | 5 | (5) | - | - | | | Other movements | - | (1) | - | (1) | | | Balance at 31 March 2018 | 995 | 1,010 | 2,005 | 2,005 | | | IFRS 9 opening balance adjustments | 277 | (263) | 14 | 14 | | | Revised balance at 1 April 2018 | 1,272 | 747 | 2,019 | 2,019 | | | Net parliamentary funding – drawn down | 14,139 | - | 14,139 | 14,139 | | | Net parliamentary funding – deemed | 928 | - | 928 | 928 | | | National Insurance Fund - RPS | 4.1 | 320 | - | 320 | | | Supply (payable)/receivable adjustment | 18 | (1,280) | - | (1,280) | | | Income payable to the Consolidated Fund | (675) | - | (675) | (675) | | | Decrease in RPS receivables | 14 | (71) | - | (71) | | | Net expenditure for the year | (13,559) | - | (13,559) | (13,559) | | | Non-Cash Adjustments: | | | | | | | Auditors’ remuneration | 4.1 | 1 | - | 1 | | | Movements in Reserves: | | | | | | | Other comprehensive net income for the year | - | (21) | - | (21) | | | Transfers between reserves | 1 | (1) | - | - | | | Other movements | 1 | (3) | - | (2) | | | Balance at 31 March 2019 | 1,077 | 722 | 1,799 | 1,799 |

## Consolidated Statement of Changes in Taxpayers’ Equity

### (Departmental Group)

**for the period ended 31 March 2019**

| Note | General Fund restated | Non-current Assets Held for Sale | Revaluation Reserve | Taxpayers’ Equity restated | Total Reserves restated | |------|-----------------------|---------------------------------|---------------------|---------------------------|-------------------------| | | £m | £m | £m | £m | £m | | Balance at 1 April 2017 | (175,148) | 2,813 | 15 | (172,320) | 105 | (171,896) | | Net parliamentary funding – drawn down | - | - | - | - | - | - | | National Insurance Fund - RPS | 4.1 | 260 | - | 260 | - | 260 | | Supply (payable)/receivable adjustment | 14, 18 | 628 | - | 628 | - | 628 | | Income payable to the Consolidated Fund | - | - | - | - | - | - | | Decrease in RPS receivables | 14 | (7) | - | (7) | - | (7) | | Net expenditure for the year | (86,411) | - | - | (86,411) | - | (86,411) | | Amounts paid from distributable reserves | (162) | - | - | (162) | - | (162) | | Non-Cash Adjustments: | | | | | | | | Auditors’ remuneration | 4.1 | 1 | - | 1 | - | 1 | | Movements in Reserves: | | | | | | | | Other Comprehensive net expenditure/income for the year | - | - | - | - | - | - | | Transfers between reserves | 123 | 23.3 | - | 146 | - | 146 | | Minority interest | 108 | (124) | - | (18) | - | (18) | | Transfer to Statement of Comprehensive Net Expenditure | - | - | - | - | - | - | | Net Expenditure | 3 | - | - | 3 | - | 3 | | Issue of share capital | - | - | - | - | - | - | | Other movements | 7 | - | - | 7 | - | 7 | | Balance at 31 March 2018 | (250,098) | 2,915 | - | (247,183) | - | (246,715) | 7

The Notes on pages 123 to 225 form part of these Accounts.

(142,304)

Other movements

Balance at 31 March 2019

-

(55)

Minority interest

Transfers between reserves

1

(34)

4.1

(131)

94,360

(71)

(1,331)

Other comprehensive net (expenditure)/ income for the year

Movements in Reserves:

Auditors’ remuneration

Non-Cash Adjustments:

Amounts paid from distributable reserves

Net expenditure for the year

Decrease in RPS receivables

14

18

Supply (payable)/receivable adjustment

(1,280)

320

4.1

National Insurance Fund - RPS

Income payable to the Consolidated Fund

928

14,139

Net parliamentary funding – deemed

Net parliamentary funding – drawn down

941 (249,157)

Revised balance at 1 April 2018

£m

IFRS 9 opening balance adjustment

Note

General Fund restated

2,155

1

-

(60)

225

-
-
-
-
-
-
-
-
-

1,989

(926)

£m

Revaluation Reserve

-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-

£m

(140,149)

8

-

(115)

191

1

(131)

94,360

(71)

(1,331)

(1,280)

320

928

14,139

(247,168)

15

£m

Non-current Assets Held for Sale Revaluation Taxpayers’ Reserve Equity restated

438

-
-

124

-
-
-
-
-
-
-
-
-
-

314

-

£m

232

-

87

(9)

-
-
-
-
-
-
-
-
-
-

154

-

£m

Charitable Funds Unrestricted/ Non controlling Restricted interest

(139,479)

8

87

-

191

1

(131)

94,360

(71)

(1,331)

(1,280)

320

928

14,139

(246,700)

15

£m

Total Reserves restated

122 Annual report and accounts 2018-19

Notes to the Accounts

1 Accounting policies, judgements and estimates

1.1 Basis of accounting These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adapted and interpreted by the HM Treasury 2018-19 Financial Reporting Manual (FReM) and as set out in the Accounts Direction to the department pursuant to section 5(2) of the Government Resources and Accounts Act 2000 except as described at 1.2 below. Where the FReM permits a choice of accounting policy, the policy selected is that judged to be most appropriate to the particular circumstances of the department and its consolidated entities (the Group) for the purpose of giving a true and fair view. The policies adopted by the Group are described below; they have been applied consistently to items considered material to the accounts. Derogation has been obtained from HM Treasury to apply IFRS 15 for NDA income on first time adoption in 2018-19 on a prospective basis and therefore will not be required to report any retrospective adjustments.

The consolidated Statement of Financial Position shows significant net liabilities, primarily relating to Contracts for Difference derivatives and provisions for nuclear decommissioning which will be settled over many years. Liabilities in excess of those to be funded by the Group will be met by future funding voted by Parliament annually in Supply and Appropriation Acts. There is no reason to believe the resources to settle these liabilities will not be forthcoming. It has accordingly been considered appropriate to adopt a going concern basis for the preparation of these financial statements.

1.2 Accounting convention These accounts have been prepared under the historical cost convention modified to measure property, plant and equipment (except specific waste management assets), intangibles, investment properties and financial instruments at fair value to the extent required or permitted under IFRS as set out in these policies.

The department has agreed with HM Treasury that specific nuclear waste management assets should be measured at historical cost less any impairment losses where there is no reliable and cost effective valuation methodology; this is a departure from the FReM requirement to report property, plant and equipment at fair value. Public Dividend Capital and shares in bodies held by the core Department are carried at historical cost less any impairment in accordance with the FReM.

1.3 Presentational currency The financial statements are presented in pounds sterling, the functional currency of the Group. Transactions denominated in a foreign currency are translated into sterling at the rate of exchange on the date of each transaction. In preparing the financial statements, monetary assets and liabilities denominated in foreign currencies are translated at the rates prevailing at the reporting date. All translation differences of monetary assets and liabilities are included in Net expenditure for the year. Values are rounded to the nearest million pounds (£m) unless the FReM requires a lower threshold.

1.4 Basis of consolidation The Group accounts consolidate the balances of the core Department and designated bodies listed in note 28, which fall within the departmental boundary as defined in the FReM and make up the ‘Departmental Group’, excluding transactions and balances between them. Where the Office for National Statistics (ONS) designates a body retrospectively such that the body should have been designated for consolidation in a prior period, the accounts are voluntarily restated to reflect the position from the effective date of classification. The consolidated bodies prepare accounts in accordance with either the FReM, the Charities’ Statement of Recommended Practice (for charities), or the Companies Act 2006 (for limited companies). For those bodies that do not prepare accounts in accordance with the FReM, adjustments are made at consolidation if necessary where differences would have a significant effect on the accounts. The core Department and its designated bodies are all domiciled in the UK. 1.5 Changes in accounting policies Accounting policies for financial instruments and revenues from contracts with customers have been updated to reflect the new accounting standards adopted in the year. Detail of new accounting standards and FReM changes is discussed in note 1.6 below.

1.6 New accounting standards adopted in the year and FReM changes

1.6.1 IFRS 9 ‘Financial Instruments’ IFRS 9 ‘Financial Instruments’ replaces IAS 39 ‘Financial Instruments: Recognition and Measurement’ and was adopted by the public sector from 1 April 2018. The FReM removes the option to adopt IFRS 9 retrospectively, and therefore the Group has recognised any adjustments to the carrying amounts of financial assets and liabilities at the date of transition in the opening retained earnings and other reserves of the current period. Consequently, amendments to IFRS 7 ‘Financial Instruments: Disclosures’ have also been applied to the current period only. The adoption of IFRS 9 has resulted in changes to the accounting policies for classification, measurement and impairment of financial assets.

Classification and measurement of financial assets IFRS 9 contains three principal classification categories for financial assets: amortised cost, fair value through other comprehensive income (FVOCI), and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is based on the business model in which a financial asset is managed and its contractual cash flow characteristics. IFRS 9 removes the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Derivatives embedded in contracts where the host is a financial asset in scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification.

Under IFRS 9, the requirement for classifying and measuring financial assets is that:

- Loans and other debt instruments are classified as either amortised cost, FVOCI or FVTPL, dependent on the business model and cash flow characteristics of the financial assets
- Investments in equity instruments are classified as FVTPL, unless an irrevocable election is made on initial recognition to recognise subsequent changes in fair value in Other Comprehensive Income (OCI). The election is only available to equity instruments that are not held for trading.
- Derivatives are classified as FVTPL

Classification and measurement of financial liabilities Financial liabilities are classified and subsequently measured at amortised cost, except for:

- Financial liabilities at fair value through profit or loss, which is applied to derivatives and other financial liabilities designated as such at initial recognition
- Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the consideration received for the transfer
- Financial guarantee contracts and loan commitments

Impairment IFRS 9 replaces the ‘incurred loss model’ in IAS 39 with a forward looking ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments and FVTPL financial assets. The accounting policy for impairment of financial assets can be found in note 1.20 and the impairment methodology is detailed in the financial instruments note 23.

(a) Reconciliation of carrying amounts of financial assets under IAS 39 and IFRS 9 The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 on 1 April 2018: | Loans and Receivables | Carrying amount under IAS 39 at 31 March 2018 £m | Transfer between categories £m | Transfer to associates £m | Transfer of embedded derivatives £m | Re-measurement under IFRS 9 £m | Carrying amount under IFRS 9 at 1 April 2018 £m | Amortised cost £m | FVOCI designated £m | FVTPL £m | |-----------------------|-----------------------------------------------|--------------------------------|---------------------------|-----------------------------------|-------------------------------|-----------------------------------------------|----------------|----------------|----------------| | Cash and cash equivalents | 2,034 | - | - | - | - | 2,034 | 2,034 | - | - | | Receivables | 2,001 | - | - | - | (2) | 1,999 | 1,999 | - | - | | Loans to public sector bodies | 943 | - | - | - | - | 943 | 943 | - | - | | Loans to private sector entities | 598 | 61 | - | - | 2 | 661 | 661 | - | - | | Term deposits | 7 | - | - | - | - | 7 | 7 | - | - | | Held to maturity | | | | | | | | | | | Term deposits | 7 | - | - | - | - | 7 | 7 | - | - | | Available for sale | | | | | | | | | | | Repayable Launch Investments | 1,047 | - | - | - | - | 1,047 | - | - | 1,047 | | Ordinary shares in public sector entities | 1,337 | - | - | - | - | 1,337 | - | 1,337 | - | | Ordinary shares in private sector entities | - | 99 | - | - | - | 99 | - | 99 | - | | Property related holdings | 42 | (42) | - | - | - | - | - | - | - | | Equities (listed securities) | 269 | (269) | - | - | - | - | - | - | - | | Private equities | 317 | (317) | - | - | - | - | - | - | - | | Investment funds | 1,321 | 544 | - | 31 | - | 1,896 | - | - | 1,896 | | Other investments | 669 | (76) | (461) | - | - | 132 | - | - | 132 | | Bonds | 59 | - | - | - | (1) | 58 | 58 | - | - | | Fair value through profit or loss | | | | | | | | | | | Derivatives | 109 | - | - | (31) | - | 78 | - | - | 78 | | Total financial assets | 10,760 | - | (461) | - | (1) | 10,298 | 5,709 | 1,436 | 3,153 | The Departmental Group’s accounting policies on the classification of financial instruments under IFRS 9 are set out in note 1.20. The application of these policies resulted in the reclassifications set out in the table above and explained below:

- Cash and cash equivalents, receivables, loans to public sector bodies, and term deposits that were classified as ‘loans and receivables’ and ‘held to maturity’ are now measured at ‘amortised cost’. There are no changes in terms of measurement for these assets upon transition.

- Loans to private sector entities that were classified as ‘loans and receivables’ under IAS 39 meet the solely payments of principal and interest test for cash flows characteristics. The objective of the business model is achieved by collecting the contractual cash flows only and therefore, they are classified as ‘amortised cost’ under IFRS 9. An adjustment for the impairment allowance of £2 million calculated under the ECL model was recognised in retained earnings at 1 April 2018.

- Bonds were classified as ‘available for sale’ and are now measured at ‘amortised cost’. The Group’s intention is to hold these bonds for collecting contractual cash flows only. Sale of the bonds only happens infrequently when there is an increase in the assets’ credit risk. Their cash flows are solely payments of principal and interest. Upon transition, the cumulative gain previously recognised in OCI was removed from equity and applied against the fair value of the financial asset at the reclassification date resulting in an adjustment of £1 million to retained earnings and carrying amount of the asset at 1 April 2018.

| From available for sale (IAS 39) to Amortised Cost | 2019 £m | |---------------------------------------------------|---------| | Fair value as at 31 March 2018 | 59 | | Fair value gain/ (loss) that would have been recognised during the year if the financial asset had not been reclassified. | (1) |

- Repayable launch investments were classified as ‘available for sale’ with the revaluation movements previously going through OCI. As the repayments are contingent on the sales of the products, they do not meet the solely payments of principal and interest test and are measured at ‘FVTPL’. On adoption, the cumulative gain or loss previously recognised in Revaluation Reserve of £235m as at 31 March 2018 has been transferred to the Taxpayer’s Equity.

- Ordinary shares in consolidated public sector entities were held at Cost under IAS 39/IAS 27, this continues to be permitted under IFRS 9/IAS 27.

- Ordinary shares in non-consolidated public sector entities in accordance with the FReM were classified as ‘available for sale’. The Group intends to hold these, for long term strategic purposes, and as permitted by IFRS 9, have designated these investments at the date of initial application as measured at ‘FVOCI’.

- Ordinary shares in private sector entities were classified as ‘available for sale’ under IAS 39. The Group intends to hold these, except for the £3 million of shares held by UK Green Infrastructure Platform (UKGIP), for long term strategic purposes, and as permitted by IFRS 9, have designated these investments at the date of initial application as measured at ‘FVOCI’. The £3 million of shares held by UKGIP, for trading, and therefore, the OCI option is not available and they are measured at ‘FVTPL’.

- Investment funds were classified as ‘available for sale’. The holdings are standard investment funds with either a limited life or redeemable units, and measured at ‘FVTPL’ as they are debt instruments that do not meet the solely payments of principal and interest test.

  - On adoption, the cumulative gain or loss previously recognised in Revaluation Reserve of £926 million as at 31 March 2018 has been transferred to the Taxpayer’s Equity.
  - The category transfer of £31 million from investment funds to ordinary shares in non-public sector entities is related to the ordinary share holding in the Global Climate Partners Fund, which is an investment company rather than a standard limited partnership fund with a limited life. • Loans that were previously classified as ‘available for sale’ within the Other Investments category are those held by UKGIP. As they are held to sell, not to collect contractual cash flows, they fail the business model test and are classified as ‘FVTPL’ under IFRS 9.

• Derivatives were classified as ‘fair value through profit and loss’ under IAS 39 and remain measured at ‘FVTPL’ under IFRS 9. However, embedded derivatives are no longer assessed separately from the host financial asset leading to a category transfer of £31 million from derivatives to investment funds.

(b) Reconciliation of carrying amounts of financial liabilities under IAS 39 and IFRS 9

The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 on 1 April 2018:

| Reconciliation | Carrying amount under IAS 39 at 31 March 2018 £m | Transfer from provisions £m | Remeasurement under IFRS 9 £m | Carrying amount under IFRS 9 at 1 April 2018 £m | Amortised cost £m | FVTPL designated £m | FVTPL mandatory £m | Other £m | |----------------|-----------------------------------------------|-----------------------------|-------------------------------|-----------------------------------------------|-----------------|-------------------|-------------------|---------| | Fair value through profit or loss | | | | | | | | | | Derivatives | (15,915) | - | - | (15,915) | - | - | (15,915) | - | | Other liabilities | | | | | | | | | | Payables | (2,175) | - | - | (2,175) | (2,175) | - | - | - | | Financial guarantee liabilities | (61) | - | 16 | (45) | - | - | - | (45) | | Loan commitment liabilities | - | (184) | - | (184) | - | (184) | - | - | | Total financial assets | (18,151) | (184) | 16 | (18,319) | (2,175) | (184) | (15,915) | (45) |

The explanations of changes to financial liabilities under IFRS 9 are set out below:

• The core Department’s financial guarantee liabilities were remeasured under IFRS 9, leading to £16 million decrease in the carrying amount, which was recognised in the adjustment to the general fund opening balances.

• The British Business Bank (BBB)’s Enterprise Capital Fund commitments to provide loans under market rates were designated under IFRS 9 to be measured at fair value through profit or loss because the group of financial assets and financial liabilities is managed and its performance is evaluated on a fair value basis, in accordance with a documented investment strategy and information is provided internally on that basis to the key management personnel. For clarity, the loan commitment liabilities were transferred out from provisions to be disclosed together with financial guarantee liabilities.

(c) Impacts of transition to financial statement line items

The following table summarises the impact of transition to IFRS 9 on assets, revaluation reserve and general fund at 31 March 2018: | | Closing balance under IAS 39 at 31 March 2018 | Transfers | Gross carrying amount remeasurement under IFRS 9 | Expected credit loss remeasurement under IFRS 9 | Reclassification from AFS to amortised cost | Opening balance under IFRS 9 at 1 April 2018 | |--------------------------------|---------------------------------------------|-----------|-----------------------------------------------|-----------------------------------------------|---------------------------------------------|---------------------------------------------| | Receivables | £m | £m | £m | £m | £m | £m | | Total impact on current assets| | | | | | | | Other financial assets | 4,336 | (430) | 27 | (25) | (1) | 3,907 | | Investments in joint ventures and associates | 367 | 461 | | | | 828 | | Total impacts on non-current assets | | 31 | 27 | (25) | (1) | | | Derivatives | (15,806) | (31) | | | | (15,837) | | Provisions | (240,935) | 184 | | | | (240,751) | | Financial guarantee and loan commitment liabilities | (61) | (184) | 16 | | | (229) | | Total impacts on non-current liabilities | | (31) | 16 | | | | | General fund | 250,098 | (926) | (43) | 27 | 1 | 249,157 | | Revaluation reserve | (2,915) | 926 | | | | (1,989) | | Total impacts on reserves | | (43) | 27 | | 1 | |

1.6.2 IFRS 15 ‘Revenue from Contracts with Customers’

IFRS 15 ‘Revenue from Contracts with Customers’ replaces IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’ and has been adopted by the public sector from 1 April 2018. The new standard requires the Group to apportion revenue earned from contracts to individual promises, or performance obligations, on a stand-alone selling price basis, based on a five-step model. The FReM removes the option to adopt IFRS 15 retrospectively, and therefore any difference between the previous carrying amount and the carrying amount under IFRS 15 has been recognised as adjustments to opening balances on 1 April 2018.

The impacts on significant income streams are set out below.

Sales of goods and services

Within the scope of IFRS 15, the stream of income that has been significantly affected by the new accounting standard is around £850 million from the service contracts held by Nuclear Decommissioning Authority (NDA) for fuel reprocessing, waste and product storage, and the transportation of spent fuel, waste and products. Due to the limited availability of consistent historical data relating to the contracts and the extent to which the contracts and associated assumptions have changed over time, NDA has obtained a derogation from HM Treasury to apply IFRS 15 on first-time adoption in 2018-19 on a prospective basis, and therefore, will not be required to report any retrospective adjustments for prior years. A derogation has been granted to the Group to this effect. Under the new standard, NDA's income figure is subject to increased uncertainty as a higher proportion of revenue recognition will be dependent on the performance of key plants at Sellafield in the remainder of their commercial operations. In particular, the income figure for 2018-19 was highly reliant on the performance of the Thorp reprocessing plant in its final year of operations. The impact of volatility in Thorp output was more significant under IFRS 15 than under previous standards. The Thorp plant concluded reprocessing operations during 2018-19 thereby removing this uncertainty from future years.

In order to produce a consistent measurement of fulfillment of the remaining performance obligations under the waste treatment elements of the respective spent fuel reprocessing contracts, NDA has determined that the remaining revenue on overseas reprocessing contracts will be recognised over the remainder of the period in which waste treatment services for all wastes produced by the Thorp plant will be completed (currently expected to conclude in 2025). This means that the completion of the programme will be treated as a single performance obligation under a single contract and as a result there is a non-recurring impact on the contract loss provision on NDA's Statements of Financial Position. If NDA had not applied the portfolio approach to these contracts, revenue recognised in the period would have been approximately £440 million higher than that reported. The revenue will instead be recognised over the contract term, to the end of 2024-25.

During the year the NDA reviewed the revenue recognition basis of a legacy waste management contract, and concluded that the performance obligations of the contract had been fulfilled and therefore, given the NDA's derogation to set aside the requirement to retrospectively restate revenues, the remaining revenue could be recognised in the year, producing additional and non-recurring revenue in the year of approximately £120 million. The revenue would otherwise have been recognised over a long period of time at approximately £6 million per annum.

The first-time implementation of IFRS15 by the NDA (excluding the non recurring item described above) resulted in income recognised in the year being £44 million lower than the equivalent figure which would have been recognised under previous accounting standards. The variance arises from the different recognition profiles for the recognition of revenues for storage of wastes and products and the storage and de-storage of revenues, in which proportionately less revenue is recognised in the short term (and proportionately more in the medium to long term).

The prior period impact on the remaining non-NDA income stream is only £2.5 million. As a result, there is no adjustment to opening balances.

**Levy income**

The Group’s levy income of £1,212 million (2017-18: £818 million) is comprised of Low Carbon Contract Company Ltd (LCCC)’s operational costs levy of £980 million, Electricity Settlements Company Ltd (ESC)’s settlement costs levy of £183 million, Oil and Gas Authority (OGA)’s petroleum licences levy of £22 million, Financial Reporting Council (FRC)’s preparers levy of £17m and the core Department’s levy of £10 million. Apart from FRC’s preparers levy, which is based on voluntary contributions and accounted for on a cash receipts basis, the majority of the remaining levies arise from regulations and legislation. They are typically set on an annual basis, invoiced quarterly or bi-annually, and accounted for in the period to which the invoices are related. LCCC and ESC do not prepare their individual accounts under FReM and have judged that IFRS 15 does not apply to income from electricity suppliers. IFRS 15 is applicable to the Group’s levy income under FReM guidance. There are no changes in the recognition and measurement of levy income under IFRS 15.

**Fees, charges and recharges**

The Group’s income from fees, charges and recharges is £250 million (2017-18: £466 million), of which the most significant income is Insolvency Service’s administration fees of £79 million and Civil Nuclear Police Authority’s income of £48 million. The adoption of IFRS 15 does not affect the recognition and measurement of this income stream.

**Grant income**

The total grant income for 2018-19 is £262 million (2017-18: £138 million). Under the FReM grants and grants-in-aid should be accounted for in accordance with IAS 20 ‘Accounting for Government Grants and Disclosure of Government Assistance’ as interpreted by the Manual. The grant income is, therefore, out of scope under IFRS 15.

Income from Mineworkers’ Pension Scheme

Income of £475 million (2017-18: £742 million) was recognised during 2018-19 relating to the Government guarantee of certain benefits payable to members and beneficiaries of the Mineworkers’ Pension Scheme. The Government is entitled to a portion of any periodic valuation surpluses determined by the Government Actuary following triennial valuations. The cash amounts are to be received annually up to 2027. The Coal Pension receivables have been classified as held at amortised cost under IFRS 9 ‘Financial Instruments’. The associated income, therefore, is out of scope of IFRS 15.

1.7 Applicable accounting standards issued but not yet adopted and FReM changes for 2019-20

IFRS 16 ‘Leases’

IFRS 16 ‘Leases’ replaces IAS 17 ‘Leases’ and will be adopted by the public sector in 2020-21. IFRS 16 represents a significant change in lessee accounting by removing the distinction between operating leases (off-statement of financial position financing) and finance leases (on-statement of financial position financing), and introducing a single lessee accounting model. IFRS 16 requires the recognition of all leases as finance leases with exemption given to low value leases and short-term leases, i.e. those with lease terms of less than 12 months. This will result in the recognition of a right-to-use asset, measured at the present value of future lease payments, and a matching liability in the Statement of Financial Position (SoFP). Disclosure of operating leases is included in note 21.2.1. The Group is currently assessing the impacts of the IFRS 16 adoption.

1.8 Operating income

Operating income relates directly to the operating activities of the Group and includes income from contracts with customers, levies, grants and income from the Mineworkers’ Pension scheme.

The Group is required to identify receipts which it collects on behalf of the Consolidated Fund; these are not recognised as income but instead are disclosed in a separate Trust Statement published alongside these accounts and in note 4 in the Statement of Parliamentary Supply in the Accountability Report.

Operating income from contracts with customers

Income from contracts with customers are allocated to individual promises, or performance obligations, on a stand-alone selling price basis, and is recognised when the related performance obligation is satisfied, either over time or at a point in time. The performance obligations are typically satisfied upon delivery of goods and services in accordance with the contractually defined timescales. The payment terms for the invoices are typically 30 days. Where the Group receives consideration prior to the transfer of goods and services, the amount is recorded as contract liabilities. Where the Group has transferred goods and services to a customer and the right to consideration is conditioned on something other than the passage of time, the amount is recorded as contract assets.

The measurement of income takes account of significant financing components, variable consideration, any discounts or rebates.

Levies

Levy income is recognised in the Group accounts when an event has occurred that creates an obligation on a counterparty to pay the levy, the amount can be reliably measured, and it is probable that the assessed economic benefits from the taxable event will flow to the Group. Levies are typically set on an annual basis, invoiced quarterly or bi-annually, and accounted for in the period to which the invoices are related to and performance obligations are satisfied.

The Low Carbon Contracts Company Ltd (LCCC) and Electricity Supply Company Ltd are permitted to retain levies collected under statute and classified as taxes in the national accounts. This income is recognised by the companies in the same period as the related expenditure. The department is not permitted by the FReM to recognise tax income relating to future years, whereas LCCC, which does not apply the FREM, is able to. Adjustments are made on consolidation to ensure compliance with the Group accounting policy.

**Grant income**

Grant income including European Funding is recognised when there is reasonable assurance that there are no conditions attached, or that any such conditions have been complied with and it is certain the grant will be received. Research grants and fellowships are recognised in line with a schedule of pre-agreed payment profiles, which include matching considerations over the period of the grant duration and to the period which they relate. Where the terms and conditions do not specify a pre-agreed payment profile or other matching considerations, obligations are recognised in full. Where the profile indicates an unclaimed and/or unpaid amount exists at the reporting date, such sums are accrued.

**Income from the Mineworkers’ Pension scheme**

Income arising from the Government guarantee of certain benefits payable to members and beneficiaries of the Mineworkers’ Pension scheme is recognised when the core Department becomes entitled to the income and the value can be reliably measured.

**1.9 Staff costs**

Staff costs are recognised as expenses when the Group becomes obligated to pay them, including the cost of any untaken leave entitlement.

**1.10 Grants payable**

Grants payable are recognised when the grant recipient has performed the activity that creates an entitlement to the grant under the terms of the scheme and include estimates for claims not yet received. Grant contributions to international organisations in the form of promissory notes are recognised as expenses when they become payable on demand with the department exercising no further control over disbursement.

**1.11 Taxation**

The core Department and its executive agencies are exempt from corporation tax by way of Crown exemption. Some consolidated bodies are subject to corporation tax on taxable profits. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to HM Revenue and Customs, based on tax rates and laws that are enacted or substantively enacted by the reporting date.

Value Added Tax (VAT) is accounted for in the Accounts, in that the amounts are shown net of VAT except for irrecoverable VAT, which is aggregated with the cost of purchased items.

**Deferred taxation**

Deferred tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all tax-deductible temporary differences, carry forward of unused tax credits and unused tax losses to the extent that it is probable that taxable profit will be available in future years against which they can be utilised.

**1.12 Property, plant and equipment (PPE)**

Assets are capitalised as PPE if they are intended for use on a continuing basis and their original carrying value, on an individual or asset pool basis, exceeds the relevant capitalisation threshold which ranges from £1,000 to £10,000 across the Group. Exceptions are: a) assets held by the Nuclear Decommissioning Authority on designated nuclear sites are only recognised where the economic element of their value at the reporting date exceeds £100,000 and the proportion of asset value relating to commercial activity exceeds 10%; and b) operational mine water schemes and subsidence pumping stations are held by the Coal Authority at nil value because they are used to address pollution caused by past mining activities where the economic benefits have already been received. To the extent that it has been recognised as a provision under IAS 37, the estimated cost of decommissioning facilities is recognised as part of the carrying value of the asset at initial recognition and depreciated over its useful life.

**Valuation of PPE**

PPE is carried at fair value except for nuclear waste management assets held at historical cost (note 1.2) and assets under construction which are held at cost. In accordance with the FReM, assets that have short useful lives or are of low value are carried at depreciated historical cost less impairment as a proxy for fair value.

Non-specialist land and buildings are measured at current value in existing use using professional valuations. Specialist land and buildings are measured at depreciated replacement cost which represents the present value of the asset’s remaining service potential.

**Revaluation of PPE**

Any accumulated depreciation at the date of revaluation is eliminated and the resulting net value restated to equal the revalued amount. Any revaluation increase arising is credited to the revaluation reserve except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense in which case the increase is credited to Net expenditure for the year to the extent of the decrease previously charged. A decrease in carrying amount arising on revaluation is charged as an expense to the extent that it exceeds the balance, if any, held in the revaluation reserve relating to a previous revaluation of that asset. On de-recognition, any revaluation surplus remaining in the revaluation reserve attributable to the asset is transferred directly to the General Fund.

**Depreciation of PPE**

Apart from freehold and long leasehold land which are not depreciated, PPE assets are depreciated to estimated residual values on a straight-line basis over the following estimated useful lives:

| Asset Type | Useful Life | |------------------------------------------------|----------------------| | Freehold buildings | 10 – 60 years | | Leasehold land and buildings | 10 – 60 years or remaining life of lease | | Agricultural buildings | Up to 60 years | | Dwellings | Up to 60 years | | Leasehold improvements | Shorter of estimated remaining useful life or outstanding term of lease | | Computer equipment | 2 – 10 years | | Plant and machinery | 3 – 50 years or remaining life of lease | | Office machinery (included in plant and machinery), furniture, fixtures and fittings | 2 – 11 years or remaining life of lease | | Transport equipment | 2 – 14 years | | Ships (included in transport equipment) | Minimum of 20 years | | Aircraft (included in transport equipment) | Minimum of 15 years | | Assets under construction | Not depreciated until available for use as intended by management |

Residual values and useful lives are reviewed and adjusted if appropriate at each reporting date.

**1.13 Investment property**

The Group holds a number of properties which have been classified as investment properties and are measured using the fair value model specified in IAS 40. Gains and losses arising from changes in fair value are recognised in Net expenditure for the year.

**1.14 Intangible non-current assets**

Intangible non-current assets are capitalised if they are intended for use on a continuing basis and their original carrying value, on an individual or asset pool basis, exceeds the relevant capitalisation threshold which ranges from £1,000 to £10,000 across the Group. There are no active markets for any of the Group’s intangible non-current assets which are valued at the lower of depreciated replacement cost and value in use using a valuation technique (for example for income-generating assets); where there is no value in use, depreciated replacement cost is used. Assets of low value or with short useful lives are carried at cost less accumulated amortisation and impairment losses as a proxy for fair value. They are amortised on a straight-line basis over the following periods:

| Asset Type | Amortisation Period | |-----------------------------------|---------------------| | Software licenses | 3 – 10 years | | Internally developed software | Up to 10 years | | Website development costs | 2 – 5 years | | Patents, licenses and royalties | 7 – 15 years |

1.15 Impairment of PPE and intangible non-current assets

The Group reviews carrying amounts at each reporting date. If an indicator for impairment occurs then the recoverable amount of the asset (the higher of fair value less costs to sell and value in use) is estimated and an impairment loss recognised to the extent that it is lower than the carrying amount. Losses arising from a clear consumption of economic benefit are charged to Net expenditure for the year. Losses that do not result from a loss of economic value or service potential are taken to the revaluation reserve to the extent that a revaluation reserve exists for the impaired asset; otherwise to Net expenditure for the year.

1.16 Assets held for sale

Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable, the asset is available for immediate sale in its present condition and the asset is actively marketed for sale. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Assets held for sale are measured at the lower of a) carrying amount and b) fair value less costs to sell.

1.17 Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and other short term highly liquid investments which are readily convertible to known amounts of cash are subject to insignificant risk of changes in value and have an original maturity of three months or less. Any bank overdraft amounts are included within Trade payables and other liabilities.

1.18 Leases

Leases are classified as finance leases when the risks and rewards of ownership are transferred substantially to the lessee; all other leases are classified as operating leases.

Finance leases

Group as lessor

Amounts due from lessees under finance leases are recognised as receivables at the amount of the Group’s net investment in the lease. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Group’s net investment outstanding in respect of the leases.

Group as lessee

Assets subject to finance leases and the associated liabilities for future payments (if any) are recognised in the SoFP.

Operating leases

Group as lessor

Assets subject to operating leases are recognised in the SoFP with rental income plus initial direct costs incurred in arranging the lease, including incentives to the lessee to enter into the lease, recognised on a straight-line basis over the lease term. Group as lessee Rentals payable under operating leases, including benefits received and receivable as incentives to enter into the leases, are expensed on a straight-line basis over the term of the lease.

1.19 Subsidiaries, associates and joint ventures Subsidiaries and public sector joint ventures are consolidated where designated within the Departmental Group boundary (note 28); those outside the Departmental boundary are measured in accordance with IFRS 9. Equity investments in associates or joint ventures outside the public sector are initially recorded at cost and subsequently adjusted to reflect the Group’s share of net profit or loss of the associate or joint venture.

1.20 Financial instruments Financial assets and liabilities are measured initially at fair value plus transaction costs unless carried at fair value through profit or loss in which case transaction costs are charged to Net expenditure for the year. Fair value is determined by reference to quoted prices where an active market exists for the instrument; otherwise it is determined using generally accepted valuation techniques including discounted estimated cash flows. A regular way purchase or sale of financial assets shall be recognised and derecognised, as applicable, using settlement date accounting.

Financial assets Financial assets are derecognised when the rights to receive future cash flows have expired or are transferred and the risks and rewards of ownership have been substantially transferred.

Categories of financial asset Financial assets are categorised as one of the following:

- Amortised cost are financial assets whose cash flows are the solely payments of principal and interests and the business model of which is to hold for collecting contractual cash flows only. They are initially recognised at fair value and thereafter at amortised cost using the effective interest method less any impairment. The effective interest rate method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period.

- Fair value through Other Comprehensive Income (FVOCI) are either: (i) debt instruments whose cash flows are the solely payments of principal and interests and the business model of which is to hold for both collecting contractual cash flows and selling. (j) equity instruments that are neither held for trading nor contingent consideration recognised in a business combination, as the Departmental Group has made an irrevocable election at initial recognition.

After initial recognition, these assets are subsequently carried at fair value. Gains and losses in fair value are recognised directly in equity. On de-recognition, the cumulative gain or loss previously recognised in equity is recognised in Net expenditure for the year for debt instruments and transferred to General Fund for equity instruments.

- Fair value through profit or loss (FVTPL) are any financial assets that are not measured at amortised cost or FVOCI. Transaction costs and any subsequent movements in the valuation of the asset are recognised in Net expenditure for the year.

Impairment of financial assets Financial assets other than equity instruments and those at FVTPL are assessed for impairment at each reporting date using the expected credit loss (ECL) model. The three-stage model based on the level of credit risk is applied to any financial assets other than long term trade receivables, contract assets which do contain a significant financing component and lease receivables within the scope of IAS 17 as follows:

- For financial assets with low credit risk or assets that have not had a significant increase in credit risk since initial recognition, 12-month ECL are recognised and interest revenue is calculated on the gross carrying amount of the asset without the reduction of credit allowance. • For financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment, lifetime ECL are recognised and interest revenue is calculated on the gross carrying amount of the asset.

• For financial assets that have objective evidence of impairment at the reporting date, lifetime ECL are recognised and interest revenue is calculated on the net carrying amount net of credit allowance.

Impairment gains or losses, the amount of expected credit losses (or reversal) that is required to adjust the loss allowance at the reporting date to the amount that is required to be recognised in accordance with the Standard, are recognised in profit or loss.

For long term trade receivables, contract assets which do not contain a significant financing component and lease receivables within the scope of IAS 17 ‘Leases’, the simplified approach is applied and lifetime ECL are recognised as dictated by the FReM.

Financial liabilities

Financial liabilities are derecognised when the obligation is discharged, cancelled or expires. The Group’s financial liabilities excluding derivatives are initially recognised at fair value including directly attributable transaction costs, and subsequently at amortised cost using the effective interest rate method.

Derivative financial instruments

Derivatives are initially recognised at fair value and subsequently at fair value. Gains/losses in fair value are recognised in Net expenditure for the year unless hedge accounting is applied.

The Group has two classes of derivative financial instrument, foreign exchange contracts to which hedge accounting is applied and Contracts for Difference to which hedge accounting is not applied.

Forward foreign exchange contracts

Forward contracts are held as cash flow hedges to reduce exposure to foreign currency risk. The effective portions of changes in their fair values are recognised in equity. Gains and losses relating to ineffective portions are recognised immediately in Net expenditure for the year. Amounts accumulated in equity are recycled to Net expenditure for the year in the same period as the hedged item.

Contracts for Difference (CfDs)

CfDs are held to incentivise investment in low carbon electricity generation by agreeing strike prices with electricity generators which are counterparties to the contracts. The counterparty pays or is paid the difference between the strike price and the reference price (a measure of the average market price of electricity) at the time of electricity supply. CfDs are measured at FVTPL, initially at their transaction price (£nil) with subsequent changes in fair value (as measured by a valuation model) recognised in Net expenditure for the year along with amortisation over the contracts settlement period of the difference between the transaction price and the valuation model estimate of fair value at initial recognition which is usually different from the transaction price. Where the valuation model estimate of fair value at initial recognition is different from the transaction price, the difference is deferred and amortised to Net expenditure for the year over the contract settlement period (note 9).

1.21 Financial guarantees and loan commitments

Financial guarantee contract liabilities

Financial guarantees are initially recognised at fair value on the date the guarantee was given and subsequently re-measured at the higher of a) the amount of loss allowance determined in accordance with IFRS 9 ‘Financial Instruments’ and b) the amount initially recognised less when appropriate, cumulative amortisation in accordance with IFRS 15 ‘Revenue from Contracts with Customers’. Loan commitments at below market rate

The Group accepts a lower than market rate of return from Enterprise Capital Fund investments in order to encourage private sector investors to invest alongside. Although the Group expects to make a positive return from these investments, this return is less than that required by the private sector. The Group has at initial recognition elected to irrevocably designate the liability related to these loan commitments as measured at fair value through profit or loss because the group of financial assets and financial liabilities is managed, and its performance is evaluated on a fair value basis, in accordance with a documented investment strategy, and information is provided internally on that basis to the key management personnel.

1.22 Pensions

The accounting for each of the Departmental Group’s pension plans is dependent on its nature.

Funded defined-benefit pension schemes

The Group has nine funded defined-benefit pension schemes: the UKRI’s Medical Research Council Pension Scheme (MRCPS), two schemes through the NDA and six others through the nuclear site licence companies.

The net liabilities recognised in the Statement of Financial Position for funded defined benefit schemes are calculated by independent actuaries by deducting the fair value of scheme assets (at bid prices) from the present value of defined benefit obligations (estimated using the projected unit credit method, less any amounts receivable from third parties). Where the scheme is in surplus, the asset recognised in these statements is limited to the present value of benefits available from future refunds from the plan, reductions in future contributions to the plan or on settlement of the plan and takes into account the adverse effect of any minimum funding requirements. Actuarial gains and losses are recognised as Other Comprehensive Income and Expenditure except for site licence companies where they are included in provision expense relating to the Nuclear Decommissioning Provision.

Unfunded defined benefit pension schemes

The Group contributes towards a number of unfunded defined benefit pension schemes of which employees are members: these include the Principal Civil Service Pension Scheme, the Civil Servant and Other Pension Scheme, the Combined Pension Scheme of the UK Atomic Energy Authority. The participating employers in these schemes are unable to identify their share of the underlying net liability; as such these schemes are accounted for as defined contribution pension schemes, with employers contributions charged to the SoCNE in the period to which they relate. Further information regarding PCSPS and CSPOS is presented in the Staff Report.

Defined contribution pension schemes

Contributions are charged to the SoCNE when they become payable. The Group has no further liabilities in respect of benefits to be paid to members.

More information about the Group’s pension schemes can be found in the accounts of the consolidated entities, including in note 3 for the core Department, and of the pension schemes themselves. 1.23 Provisions A provision is recognised when it is probable that an outflow of economic benefits will be required to settle a present obligation (legal or constructive) that can be reliably measured and which results from a past event. Where the time value of money is material the provision is measured at present value using discount rates prescribed by HM Treasury. Previously HM Treasury issued real rates based upon the real yield of UK index-linked gilts. From 2018-19 onwards, HM Treasury is issuing nominal rates that do not take account of inflation, unlike real rates. Using these nominal rates, the cash flows are inflated using the following inflation rates provided by HM Treasury except where a more appropriate forecast has been identified for specific provisions:

| Cash outflows expected within two years | Nominal discount rate | Inflation rate | 31 March 2019 Equivalent real discount rate | 31 March 2018 Real discount rate | |----------------------------------------|-----------------------|----------------|---------------------------------------------|---------------------------------| | Cash outflows expected between two and five years | 0.76% | 2.0% | (1.22%) | (2.42%) | | Cash outflows expected between five and ten years | 1.14% | 2.1% | (0.94%) | (1.85%) | | Cash outflows expected after ten years | 1.99% | 2.1% | (0.11%) | (1.56%) |

Nuclear decommissioning provisions Where expenditure in settlement of a provision is expected to be recovered from a third party, the recoverable amount is treated as a separate asset (note 12 Recoverable contract costs). Provision charges in the SoCNE are shown net of changes in these recoverable amounts.

1.24 Contingent assets and liabilities Where an outflow of economic benefits from a past event is possible but not probable, the department discloses a contingent liability. In addition to contingent liabilities disclosed in these financial statements in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets, certain statutory and non-statutory contingent liabilities where the likelihood of a transfer of economic benefit is remote are disclosed in the Accountability Report for Parliamentary reporting and accountability purposes.

Where an inflow of economic benefits from a past event is probable, the Group discloses a contingent asset. Estimates of the financial effects are disclosed where practicable; where the time value of money is material, contingent liabilities and assets are stated at discounted amounts and the amount reported to Parliament separately noted. Remote contingent liabilities reported in the Accountability Report are stated at the amounts reported to Parliament.

1.25 Third party assets The Group holds, as custodian or trustee, certain cash balances belonging to third parties. These balances are not recognised in the financial statements since neither the Group nor Government more generally has a direct beneficial interest in them.

1.26 Judgements, estimates and assumptions Preparation of financial statements requires management to make judgements, estimates and assumptions based on experience and expected events that affect the reported amounts of assets and liabilities, income and expenditure. Key accounting judgements applied in these statements are described below.

Judgements Hinkley Point C (note 9) In accordance with the IFRS Conceptual Framework - Hinkley Point C Contract for Difference (CfD) liability has not been recognised in these financial statements. This is due to the unavoidable uncertainties in creating a fair value estimate for HPC CfD due to the duration of the contract and lack of reliable independent estimates or readily available forecasts of wholesale electricity prices beyond 2040. Reliability is defined as using information that is complete, neutral and free from error. This means that a condition of the Conceptual Framework, that an item is recognised in the financial statements when the item has a cost or value that can be measured with reliability, is not met.

**Estimates**

In accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, revisions to accounting estimates are recognised prospectively. Revisions of the estimates and assumptions below could cause material adjustment to the carrying amounts of assets and liabilities within the next financial year.

**Income recognition (note 6.1)**

A number of significant accounting judgements have been performed to apply IFRS 15 to the recognition of revenue and costs from contracts with customers held by the Nuclear Decommissioning Authority (NDA), including the determination of transaction price of each contract, the allocation of transaction price to each performance obligation, the timing of satisfaction of performance obligations, and the accounting treatment of contract costs. Detail is included in NDA’s financial statements.

**Useful lives of non-current assets**

There is uncertainty in relation to estimated useful lives of non-current assets; these are reviewed as at the reporting date and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence or legal or other limits on their use.

**Impairment of assets (note 4.2, 7, 8, 10, 11, 13, 14, 16, and 23)**

Impairment of non-financial assets is measured by comparing the carrying value of the asset or cash generating unit with management’s estimate of its recoverable amount. Impairment of financial assets is measured using the expected credit loss model (note 1.20).

**Fair value of Repayable Launch Investments (note 11.1)**

The econometric model used to estimate future cash flows from Repayable Launch Investments includes a number of assumptions including on future economic growth.

**Fair value of private equity investments (note 11.2)**

A range of valuation techniques are used for private equity investments, including discounted cash flows and net asset values.

**Redundancy Payments Service receivable (note 14)**

There is uncertainty in the estimate of the amount to be realised by the Insolvency Service from sale of assets of insolvent employers.

**CfD contracts (note 9)**

The significant uncertainties affecting measurement of Financial Investment Decision Enabling for Renewables (FIDeR) and CfD contracts, which facilitate investment in low-carbon electricity generation, are described in the note.

**Fair value of financial guarantees (note 20)**

Fluctuations in the fair value of financial guarantees measured using modelling techniques.

**Provisions (note 19)**

Provision discount rates set by HM Treasury are updated annually and have a material effect on liabilities. There are other significant uncertainties in relation to measurement of the liabilities reported in note 19, in particular in relation to future decommissioning costs to be incurred by the UK Atomic Energy Authority, Nuclear Decommissioning Authority and Coal Authority, which are described in the note. 1.27 Prior Period Adjustments

In accordance with the FReM, where a prior period adjustment is identified as a result of an error, the Departmental Group will correct all material prior period errors retrospectively in the first set of financial statements authorised for issued after their discovery by:

- Restating the comparative amounts for the prior periods presented in which the error occurred;
- If the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented.

However, if it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the Departmental Group will restate the opening balances of assets, liabilities and equity for the earliest period for which retrospective restatement is practicable.

The option to adopt retrospectively has been removed by the FReM for IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’, therefore, no restatement of 31 March 2018 has been made for the adoption of these new accounting standards.

The prior period adjustments and their impact on the comparative amounts for the prior periods are detailed in note 27.

2 Reporting by operating segment

In accordance with the relevant reporting requirements, including IFRS 8, the Statement of Parliamentary Supply and supporting notes reflect net resource and capital outturn in line with the control totals voted by Parliament. The figures within SoPS 1.1 provide the income and expenditure totals associated with key business activities within the Departmental Group and therefore reflect the management information reporting to the Board during the period.

3 Staff costs

Staff costs comprise:

| Permanently employed staff | Others | Total | Total | |---------------------------|--------|-------|-------| | Wages and salaries | £m | £m | £m | £m | | 2018-19 | 785 | 70 | 855 | 779 | | 2017-18 | | | | | | Social security costs | 86 | - | 86 | 81 | | Other pension costs | 179 | - | 179 | 168 | | Sub total | 1,050 | 70 | 1,120 | 1,028 | | Less recoveries in respect of outward secondments | (1) | - | (1) | (3) | | Total net costs | 1,049 | 70 | 1,119 | 1,025 | | Of which: | | | | | | Core Department and Agencies | 309 | 21 | 330 | 273 | | NDPBs and other designated bodies | 740 | 49 | 789 | 752 | | Total net costs | 1,049 | 70 | 1,119 | 1,025 |

For further information on staff costs and numbers, please see the Staff Report and the Remuneration Report which includes staff costs for nuclear site licence companies which are not included in the table above.

## 4 Operating expenditure

### 4.1 Purchase of goods and services

| Description | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------------------------------------------------------------|------------------------------|--------------------|------------------------------|--------------------| | Rentals under operating leases | 30 | 47 | 43 | 58 | | Accommodation and office equipment costs | 42 | 218 | 50 | 202 | | Legal, professional and consultancy costs | 142 | 288 | 101 | 199 | | Finance, HR, IT and support costs | 110 | 127 | 102 | 120 | | Training and other staff costs | 10 | 28 | 11 | 32 | | Travel and subsistence costs | 11 | 55 | 8 | 51 | | Advertising and publicity | 3 | 18 | 2 | 15 | | Programme management and administration of grants and awards | 40 | 175 | 37 | 206 | | Capacity Market payments | - | 176 | - | 224 | | Professional and international subscriptions | 283 | 516 | 317 | 567 | | Enforcement costs of employment related policies | 30 | 30 | 27 | 27 | | Donations | - | 16 | - | 9 | | Funding Paternity, Adoption and Shared Parental Leave policy | 79 | 79 | 7 | 7 | | Purchase of geographical and scientific equipment | - | 46 | - | 51 | | Purchase of weather information and weather related services | 108 | 108 | 99 | 99 | | Redundancy payments service | 320 | 320 | 260 | 260 | | Sponsorship costs | 2 | 3 | - | 1 | | Payment of taxes and levies | - | 169 | - | 4 | | Subsidy to Post Office Limited | 62 | 62 | 95 | 95 | | Energy intensive industries subsidies | 141 | 141 | 302 | 302 | | Other purchase of goods and services cost | 11 | 321 | 81 | 288 | | **Total** | **1,424** | **2,943** | **1,542** | **2,817** |

**Purchase of goods and services**

**Core Department**

Included within Other purchase of goods and services costs for 2017-18 was £60 million of costs in relation to special payments; these were one-off payments and there is no corresponding cost in 2018-19. See the Losses and special payments disclosure in the Accountability Report for further details. Audit fees

Audit fees are included under the heading ‘Legal, professional and consultancy costs’.

During the year the core Department did not purchase any non-audit services from its auditor, the National Audit Office. The non-cash auditors’ remuneration of £625,570 (2017-18: £655,750) comprises £570,000 (2017-18: £600,000) for the cost of the audit of the Departmental Group, £20,000 (2017-18: £20,000) for the Trust Statement, and £35,750 (2017-18: £35,750) for the audit of the UK Atomic Energy Authority Pension Scheme Accounts.

Agencies

During the year the Agencies did not purchase any non-audit services from their auditor, the National Audit Office. Details of the non-cash auditors’ remuneration of £152,000 (2017-18: £131,000) can be found in the accounts of the individual agencies.

NDPBs and other designated bodies

The cash remuneration of £2,287,880 (2017-18: £2,353,105) relates to the statutory audit of NDPBs and other designated bodies. Of this amount, £1,955,291 (2017-18: £1,943,700) was payable to the NAO and £332,589 (2017-18 restated: £409,405) was payable to auditors other than the NAO.

In 2018-19, £nil was payable to the NAO (2017-18: £nil) and £127,546 was payable to auditors other than the NAO (2017-18: £123,079) for non-audit services. Further details can be obtained from the accounts of the NDPBs and other designated bodies.

Redundancy Payments Service

From 1 April 2018, the responsibility for the Redundancy Payment Service (RPS) transferred from the core Department to the Insolvency Service (INSS). This was accounted for in accordance with the FReM as a Transfer by Absorption. Each entity accounts for the transfer at the carrying value of the assets and/or liabilities transferred at the date of transfer. No fair value adjustment is made to the assets and/or liabilities transferred and the comparatives for the core Department and INSS are not restated.

INSS, an executive agency of the department, is responsible for the approval and processing of claims under the Redundancy Payment Service (RPS), which is financed from the National Insurance Fund. Redundancy payments are made from the National Insurance Fund to employees whose employers have failed to make payments due or who were insolvent.

The Insolvency Service has a service level agreement with HM Revenue and Customs. Claims processed fall into two categories:

- RP1 (which covers redundancy pay, holiday pay and arrears of pay).
- RP2 (pay in lieu of notice).

There is associated income arising from two sources:

- Solvent Recovery – where money is recovered from solvent employers to meet the costs of redundancy payments made by the RPS.
- Insolvent Recovery – INSS becomes a creditor receiving a dividend if there are sufficient funds in the insolvency of the employer.

Expenditure in respect of RPS in 2018-19 totalled £320 million (2017-18: £292 million) against income of £nil (2017-18: £32 million). The net amount totalled £320 million (2017-18: £260 million). The 2017-18 comparatives before the transfer were recognised in the core Department.

Payments of taxes and levies

During 2018-19, UK Research and Innovation (UKRI) was required to pay corporation tax on the chargeable gain arising on the transfer of assets from the predecessor Research Councils into UKRI. The total value of this payment was £143m.

### 4.2 Depreciation and impairment charges

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | | £m | £m | £m | £m | | Amortisation of recoverable contract costs | - | 166 | - | 227 | | Depreciation | 18 | 256 | 20 | 257 | | Amortisation | 2 | 45 | 2 | 26 | | Impairment of property, plant and equipment | 2 | 59 | 2 | 48 | | Impairment of investments | 33 | 81 | 67 | 108 | | **Total** | **55** | **607** | **91** | **666** |

### 4.3 Provision expense

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | | £m | £m | £m | £m | | Increase/(decrease) in nuclear provisions due to changes in discount rate | (37) | (95,984) | (17) | 70,985 | | Increase/(decrease) in other provisions due to changes in discount rate | (127) | (2,799) | 47 | 1,594 | | Other provision movements excluding bad debt provisions and financial guarantee liabilities | 210 | 1,057 | 148 | 2,850 | | **Total increase/(decrease) in provisions excluding bad debt provisions and financial guarantee liabilities** | **46** | **(97,726)** | **178** | **75,429** | | Total increase/(decrease) in bad debt provisions | 1 | 1 | 3 | 3 | | Total increase/(decrease) in financial guarantee liabilities | 12 | 4 | 1 | 1 | | **Total** | **59** | **(97,721)** | **182** | **75,433** |

The significant decrease in the provision expense was primarily driven by the change in discount rate. Further detail of the movements in provisions can be found in note 19.1 for Nuclear Provisions and note 19.2 for Other Provisions. 4.4 Grants

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | Research and development | £m | £m | £m | £m | | Grant in aid | 10,977 | - | 10,193 | - | | Post Office network reform | 168 | 168 | 45 | 45 | | Market frameworks | 71 | 71 | 63 | 63 | | Science and research | 465 | 6,309 | 363 | 5,695 | | International Climate Fund | 244 | 247 | 307 | 311 | | Global threat reduction programmes | 2 | 2 | 11 | 11 | | Renewable Heat Incentive | 818 | 818 | 687 | 687 | | Innovation programmes | 128 | 613 | 136 | 667 | | Energy Markets and Consumers | 3 | 3 | 9 | 8 | | Heat infrastructure team progammes | (4) | (4) | 9 | 9 | | Other grants | 4 | 4 | 11 | (66) | | **Total** | **12,907** | **8,280** | **11,935** | **7,545** |

4.5 Other operating expenditure

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | Profit on disposal of investments and minority interest | 1 | (41) | 3 | (72) | | Revaluations of investments and specific bad debt write offs | (5) | (4) | (9) | (17) | | **Total** | (4) | (45) | (6) | (89) |

The profit on disposal of financial assets mandatorily measured at fair value through profit or loss during the financial year is £42 million. The core Department does not hold any financial assets designated at fair value through profit or loss. 5 Finance expense

| | Core Department and Agencies | 2018-19 | Core Department and Agencies | 2017-18 | |--------------------------------|------------------------------|---------|------------------------------|---------| | Change in fair value - financial assets | (214) | (229) | 4 | 28 | | Net loss on foreign exchange | - | 2 | - | 4 | | Unrealised foreign exchange rate losses | 2 | 1 | 2 | 3 | | Bank charges | - | 1 | 1 | 1 | | Interest payable | - | 33 | - | 27 | | Expected return on funded pension scheme assets | - | (41) | - | - | | Interest on pension liabilities | - | 38 | - | 37 | | Borrowing costs on provisions | (37) | (3,660) | (26) | (1,306) | | **Total** | **(249)** | **(3,855)** | **(19)** | **(1,206)** |

The impact of HM Treasury-prescribed negative discount rates for provisions in 2017-18 was to increase undiscounted liabilities for the Departmental Group, the unwinding of which gave rise to a negative expense for borrowing costs on provisions. From 2018-19 onwards HMT is issuing positive nominal rates and inflation rates, however the resulting real discount rates remain negative in 2018-19 (but less significantly that in 2017-18), leading to a negative expense for borrowing costs on provisions.

6 Income

6.1 Operating income

| | Core Department and Agencies | 2018-19 | Core Department and Agencies | 2017-18 | |--------------------------------|------------------------------|---------|------------------------------|---------| | Income from sales of goods and services: | | | | | | Income from contracts with customers | | | | | | Fees, charges and recharges to/from external customers and central Government organisations | 139 | 250 | 146 | 466 | | Levy income | 10 | 1,212 | 9 | 818 | | Sales of goods and services | 11 | 936 | 12 | 955 | | Miscellaneous income | 8 | 99 | 9 | 96 | | **Other income** | | | | | | European Union funding | 4 | 26 | 2 | 24 | | Current grants and capital grants | 102 | 262 | 1 | 138 | | Coal pension receipts | 475 | 475 | 742 | 742 | | Venture capital and repayable launch investment income | - | - | 102 | 102 | | **Total operating income** | **749** | **3,260** | **1,023** | **3,341** |

Income of £475 million was recognised in 2018-19 (2017-18 £742 million) in relation to an additional sum receivable from the September 2017 valuation of the Mineworkers’ Pension Scheme. Further detail of the Coal Pensions receivables is disclosed in note 14. The most significant contracts of the Departmental Group are held by the Nuclear Decommissioning Authority (NDA). The table below shows the main types of contract, the main areas of performance obligations therein, and for each category:

- the revenue recognised in the reporting period [A]
- the revenue expected to be recognised in future reporting periods (being the aggregate amount allocation to performance obligations that are wholly or partially unsatisfied at the reporting date) [B]
- an indication of when NDA expects to recognise the remaining contract price

| Contract type | Categories of performance obligation | [A] £m | [B] £m | 2020-2025 | 2026-2038 | 2039-2087 | |---------------------------------------------------|--------------------------------------|--------|--------|-----------|-----------|-----------| | Spent fuel reprocessing and associated waste management | Receipt of spent fuel | 30 | - | - | - | - | | | Spent fuel reprocessing | 140 | - | - | - | - | | | Spent fuel storage | 10 | 709 | 63 | 135 | 511 | | | Interim storage of wastes | 83 | 496 | 496 | - | - | | | Treatment of wastes | 62 | 370 | 370 | - | - | | | Storage of treated wastes | 4 | 174 | 24 | 51 | 99 | | | Storage of products | 17 | 844 | 100 | 216 | 528 | | Spent fuel receipts | Receipt of spent fuel | 226 | 4,421 | 1,869 | 2,552 | - | | Other storage contracts | Storage of materials | 55 | 1,161 | 422 | 536 | 203 | | Storage and destorage of residues | Storage | 2 | 4 | 4 | - | - | | | Destorage | 2 | 32 | 32 | - | - | | Waste substitution | Destorage | - | 70 | 70 | - | - | | Legacy waste management | | 134 | 178 | 178 | | | | **Total** | | 765 | 8,459 | 3,628 | 3,490 | 1,341 |

The remaining revenue to be recognised in future reporting periods comprises:

- Payments from customers made on account
- Expected remaining future payments from customers 6.2 Finance income

| Note | Core Department and Agencies | 2018-19 | Core Department and Agencies | 2017-18 | |------|-----------------------------|---------|-----------------------------|---------| | | £m | £m | £m | £m | | Effective interest for Repayable launch investments and other assets under IAS 39 | 11.1 | - | - | 39 | 39 | | Effective interest for other assets under IAS 39 | - | - | 12 | 38 | | Dividend and interest income under IAS 39 | - | - | 133 | 273 | | Effective Interest for FVTPL assets | 30 | 30 | - | - | | Effective Interest for amortised cost assets | 36 | 36 | - | - | | Interest income for amortised cost assets | 10 | 74 | - | - | | Interest income for FVTPL assets | 7 | 63 | - | - | | Dividend income for FVTPL assets held at the period end | - | 3 | - | - | | Dividend income from investments in joint ventures, associates and public dividend capital | 131 | 45 | - | - | | Total | 214 | 251 | 184 | 350 |

In 2018-19 the core Department recognised dividend income of £131 million (2017-18: £121 million). This includes a dividend of £87 million from Enrichment Holdings Limited (EHL) (2017-18: £88 million).

In 2018-19 the Departmental Group received dividend income of £48 million (2017-18: £124 million). The dividend from URENCO is no longer recognised as finance income because, following the IFRS 9 implementation assessment, URENCO has been reclassified from an investment accounted for under IAS 39/IFRS 9 to an associate under IAS 28 - as the department has reassessed whether it has significant influence over URENCO and concluded that it does, this has been treated as an in year reclassification. As an associate, the department’s investment in URENCO through EHL is accounted for using the equity accounting method. This results in the department recognising its share of URENCO’s profits for the year in Other operating expenditure, £151 million in 2018-19, rather than the dividend from EHL (2017-18: £88 million) and a fair value movement in the investment recognised in Other Comprehensive income.

## Property, plant and equipment

| Departmental Group 2018-19 | Land £m | Buildings £m | Dwellings £m | Leasehold Improvements £m | Information Technology £m | Plant and Machinery £m | Furniture, Fixtures and Fittings £m | Transport Equipment £m | Assets under Construction £m | Total £m | |---------------------------|---------|--------------|--------------|---------------------------|---------------------------|------------------------|-----------------------------|------------------------|-------------------------------|---------| | **Cost or valuation** | | | | | | | | | | | | Balance at 1 April 2018 | 303 | 4,055 | 40 | 74 | 232 | 6,208 | 18 | 324 | 506 | 11,760 | | Additions | 4 | 2 | - | 2 | 6 | 32 | 4 | 4 | 258 | 312 | | Disposals | - | (1,842) | - | (13) | (8) | (122) | (1) | (2) | - | (1,988) | | Impairments | (41) | (7) | - | - | - | 3 | - | (6) | - | (51) | | Transfers in/out of boundary | - | (4) | - | (12) | (2) | - | - | - | 3 | (15) | | Reclassifications | - | 71 | - | 5 | 28 | 73 | 1 | 5 | (195) | (12) | | Revaluations | (23) | 196 | 1 | - | 1 | 10 | - | 3 | 10 | 198 | | **At 31 March 2019** | 243 | 2,471 | 41 | 56 | 257 | 6,204 | 22 | 328 | 582 | 10,204 | | **Depreciation** | | | | | | | | | | | | Balance at 1 April 2018 | - | (2,749) | - | (42) | (171) | (5,177) | (12) | (195) | - | (8,346) | | Charged in year | - | (56) | (1) | (7) | (29) | (142) | (2) | (19) | - | (256) | | Disposals | - | 1,839 | - | 13 | 8 | 121 | 1 | 2 | - | 1,984 | | Impairments | - | - | - | (1) | - | (7) | - | - | - | (8) | | Transfers in/out of boundary | - | - | - | 5 | 1 | - | - | - | - | 6 | | Reclassifications | - | - | - | - | 1 | - | - | - | - | (1) | | Revaluations | (7) | (34) | 1 | - | - | (3) | - | (8) | - | (51) | | **At 31 March 2019** | (7) | (1,000) | - | (32) | (191) | (5,207) | (13) | (221) | - | (6,671) | | **Carrying amount at 31 March 2019** | 236 | 1,471 | 41 | 24 | 66 | 997 | 9 | 107 | 582 | 3,533 | | **Carrying amount at 1 April 2018** | 303 | 1,306 | 40 | 32 | 61 | 1,031 | 6 | 129 | 506 | 3,414 | | **Asset financing:** | | | | | | | | | | | | Owned | 211 | 1,471 | 41 | 24 | 64 | 997 | 9 | 107 | 582 | 3,506 | | Finance leased | 25 | - | - | - | - | - | - | - | - | 25 | | On balance sheet (SoFP) PFI and other service concession arrangements | - | - | - | - | 2 | - | - | - | - | 2 | | Departmental Group 2018-19 | Land £m | Buildings £m | Dwellings £m | Leasehold Improvements £m | Information Technology £m | Plant and Machinery £m | Furniture, Fixtures and Fittings £m | Transport Equipment £m | Assets under Construction £m | Total £m | |---------------------------|---------|--------------|--------------|---------------------------|---------------------------|------------------------|-----------------------------|------------------------|----------------------------|---------| | Carrying amount at 31 March 2019 | 236 | 1,471 | 41 | 24 | 66 | 997 | 9 | 107 | 582 | 3,533 | | Of the total: | | | | | | | | | | | | Core Department and Agencies | 18 | 98 | - | 20 | 5 | 81 | 2 | - | 70 | 294 | | NDPBs and other designated bodies | 218 | 1,373 | 41 | 4 | 61 | 916 | 7 | 107 | 512 | 3,239 | | Carrying amount at 31 March 2019 | 236 | 1,471 | 41 | 24 | 66 | 997 | 9 | 107 | 582 | 3,533 |

| Departmental Group 2017-18 | Land £m | Buildings £m | Dwellings £m | Leasehold Improvements £m | Information Technology £m | Plant and Machinery £m | Furniture, Fixtures and Fittings £m | Transport Equipment £m | Assets under Construction £m | Total £m | |---------------------------|---------|--------------|--------------|---------------------------|---------------------------|------------------------|-----------------------------|------------------------|----------------------------|---------| | Cost or valuation | | | | | | | | | | | | Balance at 1 April 2017 | 374 | 4,110 | 39 | 72 | 210 | 6,057 | 20 | 326 | 462 | 11,670 | | Additions | - | 28 | - | 2 | 9 | 31 | 1 | 5 | 277 | 353 | | Disposals | (64) | (142) | - | (3) | (15) | (42) | (4) | (5) | (1) | (276) | | Impairments | - | (2) | - | - | (2) | (8) | - | - | (32) | (44) | | Transfers in/(out) of boundary | - | (1) | - | - | (2) | - | 2 | - | 1 | - | | Reclassifications | - | 22 | - | 3 | 27 | 151 | (1) | 1 | (205) | (2) | | Revaluations | (7) | 40 | 1 | - | 5 | 19 | - | (3) | 4 | 59 | | At 31 March 2018 | 303 | 4,055 | 40 | 74 | 232 | 6,208 | 18 | 324 | 506 | 11,760 | | Depreciation | | | | | | | | | | | | Balance at 1 April 2017 | - | (2,816) | - | (37) | (149) | (5,051) | (13) | (182) | - | (8,248) | | Charged in year | - | (52) | (1) | (7) | (31) | (146) | (2) | (20) | - | (259) | | Disposals | - | 116 | - | 2 | 13 | 34 | 3 | 4 | - | 172 | | Impairments | - | - | - | - | - | (4) | - | - | - | (4) | | Reclassifications | - | (1) | - | - | (1) | 2 | - | - | - | - | | Revaluations | - | 4 | 1 | - | (3) | (12) | - | 3 | - | (7) | | Departmental Group 2017-18 | Land £m | Buildings £m | Dwellings £m | Leasehold Improvements £m | Information Technology £m | Plant and Machinery £m | Furniture, Fixtures and Fittings £m | Transport Equipment £m | Assets under Construction £m | Total £m | |---------------------------|---------|--------------|--------------|---------------------------|---------------------------|------------------------|-----------------------------|------------------------|-----------------------------|---------| | At 31 March 2018 | - | (2,749) | - | (42) | (171) | (5,177) | (12) | (195) | - | (8,346) | | Carrying amount at 31 March 2018 | 303 | 1,306 | 40 | 32 | 61 | 1,031 | 6 | 129 | 506 | 3,414 | | Carrying amount at 1 April 2017 | 374 | 1,294 | 39 | 35 | 61 | 1,006 | 7 | 144 | 462 | 3,422 | | Asset financing: | | | | | | | | | | | | Owned | 291 | 1,306 | 40 | 32 | 58 | 1,031 | 6 | 123 | 506 | 3,393 | | Finance leased | 12 | - | - | - | - | - | - | 6 | - | 18 | | On balance sheet (SoFP) PFI and other service concession arrangements | - | - | - | - | 3 | - | - | - | - | 3 | | Carrying amount at 31 March 2018 | 303 | 1,306 | 40 | 32 | 61 | 1,031 | 6 | 129 | 506 | 3,414 | | Of the total: | | | | | | | | | | | | Core Department and Agencies | 18 | 93 | - | 29 | 2 | 75 | 1 | - | 58 | 276 | | NDPBs and other designated bodies | 285 | 1,213 | 40 | 3 | 59 | 956 | 5 | 129 | 448 | 3,138 | | Carrying amount at 31 March 2018 | 303 | 1,306 | 40 | 32 | 61 | 1,031 | 6 | 129 | 506 | 3,414 | Property, plant, and equipment (PPE) held by the Departmental Group

The professional valuations of land and buildings undertaken within the Departmental Group were prepared in accordance with the Royal Institute of Chartered Surveyors (RICS) Valuation Standards (6th Edition), the ‘Red Book’. Unless otherwise stated, land and buildings are professionally revalued every five years and where appropriate in the intervening period, relevant indices are used. The most significant land and buildings at 31 March 2019 were held by Nuclear Decommissioning Authority (NDA) and UK Research and Innovation (UKRI). Revaluations were conducted by Avison Young Ltd Chartered Surveyors and Powis Hughes Ltd Chartered Surveyors (for UKRI), and Avison Young Ltd Chartered Surveyors (for NDA).

During the year NDA eliminated fully depreciated assets no longer performing commercial activity, which had a gross book value and accumulated depreciation of £1,939 million. The assets included the Thorp reprocessing plant and associated buildings and plant and equipment which no longer perform commercial activity following the cessation of reprocessing during the year.

In accordance with the FReM the majority of Leasehold improvements, Information Technology, Furniture, Fixtures and Fittings and Plant and Machinery are held at depreciated historic cost as a proxy for fair value as the assets have short useful lives or low values. Land, Freehold Buildings, Dwellings, Transport Equipment and the remainder of Plant and Machinery are held at fair value based on professional valuations.

Within the Departmental Group, a variety of valuation techniques are used depending upon whether the PPE asset is a specialised asset or a non-specialised asset. Where the PPE asset is a specialised asset, then a depreciated replacement cost valuation is used, for example by scientific institutes. Where the PPE asset is a non-specialised asset, then an existing-use valuation is used, for example for land and office buildings. Depreciated replacement cost (DRC) valuations are based on a number of unobservable inputs; these would be classified as level 3 in accordance with IFRS 13. Existing-use value (EUV) valuations are based on a number of market corroborated but unobservable inputs e.g. land valuations are based on similar prices per hectare adjusted for the specific location of the land, whilst other EUV valuations use specific unobservable inputs, e.g. rental yields. The EUV valuations inputs are classified as level 2 and level 3 in accordance with IFRS 13.

The Departmental Group does not hold any material individual PPE assets. Therefore there are no individually material level 3 assumptions included in the overall Departmental Group fair value of PPE. For there to be a material movement in the fair value of PPE, this would require a significant increase in a number of level 3 valuation assumptions across the Departmental Group. This is unlikely, given that the fair value movement in PPE in 2018-19 was £147 million (2017-18: £52 million).

Further information can be found in the financial statements of the individual bodies’ accounts.

## 8 Intangible assets

| Departmental Group 2018-19 | Information Technology | Software Licences | Websites | Patents | Assets under Construction | Total | |---------------------------|------------------------|-------------------|---------|---------|---------------------------|-------| | | £m | £m | £m | £m | £m | £m | | **Cost or Valuation** | | | | | | | | Balance at 1 April 2018 | 152 | 72 | 1 | 297 | 7 | 529 | | Additions | 2 | 1 | - | - | 33 | 36 | | Disposals | - | (2) | - | - | - | (2) | | Reclassifications | 1 | 24 | - | - | (13) | 12 | | Transfers in/(out) | 2 | 2 | - | - | (3) | 1 | | Revaluations | - | - | - | 21 | - | 21 | | **At 31 March 2019** | 157 | 97 | 1 | 318 | 24 | 597 | | **Amortisation** | | | | | | | | Balance at 1 April 2018 | (114) | (34) | (1) | (235) | - | (384) | | Charged in year | (13) | (19) | - | (13) | - | (45) | | Disposals | - | 1 | - | - | - | 1 | | Transfers in/(out) | - | (2) | - | - | - | (2) | | **At 31 March 2019** | (127) | (54) | (1) | (248) | - | (430) | | **Carrying amount at 31 March 2019** | 30 | 43 | - | 70 | 24 | 167 | | **Carrying amount at 1 April 2018** | 38 | 38 | - | 62 | 7 | 145 | | **Asset financing:** | | | | | | | | Owned | 30 | 43 | - | 70 | 24 | 167 | | **Carrying amount at 31 March 2019** | 30 | 43 | - | 70 | 24 | 167 | | **Of the total:** | | | | | | | | Core Department and Agencies | 4 | 2 | - | - | 8 | 14 | | NDPBs and other designated bodies | 26 | 41 | - | 70 | 16 | 153 | | **Carrying amount at 31 March 2019** | 30 | 43 | - | 70 | 24 | 167 |

| Departmental Group 2017-18 | Information Technology | Software Licences | Websites | Patents | Assets under Construction | Total | |---------------------------|------------------------|-------------------|---------|---------|---------------------------|-------| | | £m | £m | £m | £m | £m | £m | | **Cost or Valuation** | | | | | | | | At 1 April 2017 | 139 | 52 | 1 | 267 | 7 | 466 | | Additions | 10 | 3 | - | - | 20 | 33 | | Disposals | (3) | (1) | - | - | - | (4) | | Reclassifications | 6 | 17 | - | - | (21) | 2 | | Transfers in/(out) | - | - | - | - | 1 | 1 | | Revaluations | - | 1 | - | 30 | - | 31 | | **At 31 March 2018** | 152 | 72 | 1 | 297 | 7 | 529 | | **Amortisation** | | | | | | | | At 1 April 2017 | (107) | (28) | (1) | (227) | - | (363) | | Charged in year | (11) | (6) | - | (8) | - | (25) | | Disposals | 3 | 1 | - | - | - | 4 | | Reclassifications | 1 | (1) | - | - | - | - | All software licenses are acquired separately.

All Information Technology (IT) assets are internally generated. IT assets are initially classified as assets under construction and are not amortised until they are commissioned, at which time they are re-classified as IT.

The Departmental Group holds its intangible assets at valuation. In accordance with the FReM, the Departmental Group adopts cost less amortisation as a proxy for fair value as the intangible assets have short lives. The exception to this is patents which are held at fair value based on a valuation model.

The model uses a variety of assumptions to estimate the value of future income streams from the patents to determine the fair value; these include an estimate for future royalty income derived from the consensus forecast data from industry specialists, which are adjusted for expected future USD/GBP exchange rates, the territories in which the patents are applicable and potential threats to future income (such as competitor products and regulatory approval). In accordance with IFRS 13, these assumptions would be classed as level 3 assumptions. The carrying amount of the patents at 31 March 2019 is £70 million (2017-18: £62 million) and there would need to be a substantial increase in expected royalty income to result in a material increase in the fair value of the patents.

9 Derivative financial instruments

The most significant items included within Derivatives on the Consolidated Statement of Financial Position (SoFP) are the Contracts for Difference (CfDs).

Contracts for Difference (CfDs)

Contracts for Difference (CfDs) are a mechanism used to support investment in UK low carbon generation projects. CfDs have been established as a contract between the ‘Generator’ and the Low Carbon Contracts Company Ltd (LCCC), a company wholly owned by the government and consolidated within the department’s accounts.

CfDs, other than the CfD relating to Hinkley Point C (HPC) nuclear generating plant, have been classified as derivatives in accordance with IFRS 9 ‘Financial Instruments’ and in the prior year in accordance with IAS 39 ‘Financial Instruments: Recognition and Measurement’ and recognised at their ‘fair value’ by deferring the difference between fair value and transaction price at initial recognition. Any subsequent gain or loss in fair value is recognised in the Statement of Comprehensive Net Expenditure. The HPC CfD has not been recognised in these accounts and its accounting treatment is described under heading ‘Hinkley Point C’ of this note. The fair value of any derivative is assessed by reference to IFRS 13 ‘Fair Value Measurement’, which provides three options for assessment. Fundamentally the value should always reference an open market place but where no market place exists, an option is available for internally generated fair value. The different options are hierarchical and classed as Level 1, 2, or 3 inputs, where Level 1 is based on market prices, Level 2 is based on observable data other than market prices and Level 3 is used where Level 1 or 2 data is unavailable.

The fair value of the department’s CfDs has been calculated using the income approach based on Level 3 inputs, which reflects the present value (PV) of future cash flows that are expected to occur over the contract term of the CfD. The discount rate which has been used to determine the PV for financial reporting is the Financial Instrument real rate of 0.7% set by HM Treasury Public Expenditure System (PES) Secretariat on 7 December 2018.

By contrast, for investment decisions and project appraisal, the department is required to use the social discount rate of 3.5% published in HM Treasury’s Green Book. As the cash flows from HPC CfD are expected to occur over a 35 year period from 2025 to 2060, the valuation for financial reporting based on the 0.7% discount rate will be significantly higher than the economic valuation based on the 3.5% discount rate, even where all other inputs are the same.

The deferred difference between the fair value of the liability on day one and the transaction price is amortised over the contract life of the CfDs, which commences from the earlier of i) the actual start date of generation or ii) the end of the Target Commissioning Window (TCW) identified in the CfD, as this is the point at which the contractual liability will start to unwind (i.e. it is the point at which the potential payment period under the CfD commences).

The significance of these two dates is that they are the part of the contractual provisions which determine when the right to potential CfD payments starts. The contract payment period is typically for 15 years, but specific exceptions exist:

- for contracts relating to biomass conversion which have an expiration date in 2027;
- the contract for HPC nuclear generating plant which will expire at the earlier of 35 years after the start date of the second reactor or when the total CfD payments made have reached the Generation Cap (i.e. 910,000,000 MWh).

CfDs may be signed many years in advance of actual generation. The main benefit to generators is the fact that they can derive economic benefit from these contracts across the payment period life of the contract and the added certainty which the CfD contract provides helps them to finance the project.

Under the legislation, there is an obligation placed on licensed electricity suppliers to fund the CfD liabilities as they crystallise through the Supplier Obligation Levy. The future levy amounts which will be received from the licensed suppliers will be accounted for within LCCC and will be triggered by the generation and supply of low carbon electricity.

As at 31 March 2019 LCCC was counterparty to 53 contracts recognised in the accounts (at 31 March 2018: 56 contracts). The liability associated with HPC has not been recognised in the accounts and is further explained below.

Measurement differences relating to day one recognition

The transaction price for CfDs differs from the fair value at initial recognition measured using a valuation model, mainly because the transaction price is not established in an active market. If there are significant unobservable inputs used in the valuation technique (Level 3), the financial instrument is recognised at the transaction price and any difference between the transaction price and fair value at initial recognition measured using a valuation model is deferred. The following table represents the difference between the CfD liability at initial recognition and at the reporting date:

| Core Department and Agencies | LCCC CfDs | Departmental Group Total | |-----------------------------|-----------|--------------------------| | **CfD liability as at 31 March 2017 recognised on the Consolidated Statement of Financial Position** | - | 12,334 | 12,334 | | Re-measurement of the CfD liability | - | 3,720 | 3,720 | | Payments to the CfD generators | - | (544) | (544) | | Deferred difference recognised during the year | - | 382 | 382 | | **CfD liability as at 31 March 2018 recognised on the Consolidated Statement of Financial Position** | - | 15,892 | 15,892 | | Other non-CfD liabilities as at 31 March 2018 | - | - | 12 | | **Carrying value of non-current derivative liabilities as at 31 March 2018** | - | 15,892 | 15,904 | | Remeasurement of the CfD liability | - | (2,743) | (2,743) | | Release of liability relating to terminated contracts | - | 39 | 39 | | Payments to the CfD generators | - | (980) | (980) | | Deferred difference recognised during the year | - | 713 | 713 | | **CfD liability as at 31 March 2019 recognised on the Consolidated Statement of Financial Position** | - | 12,921 | 12,921 | | Other non-CfD liabilities as at 31 March 2019 | - | - | 2 | | **Carrying value of non-current derivative liabilities as at 31 March 2019** | - | 12,921 | 12,923 |

The net movement in the fair value of CfDs is recognised in the Statement of Comprehensive Net Expenditure.

**Movement in deferred measurement differences**

The following table shows the movement in deferred day one loss:

| Core Department and Agencies | LCCC CfDs exc. HPC | Departmental Group Total | |-----------------------------|---------------------|--------------------------| | **Deferred measurement differences as at 31 March 2017** | - | 19,079 | 19,079 | | Measurement differences deferred during the year | - | 4,612 | 4,612 | | Deferred measurement differences recognised during the year | - | (382) | (382) | | **Carrying value of CfDs at 31 March 2018** | - | 23,309 | 23,309 | | Measurement differences recognised in respect of terminated CfDs | - | (268) | (268) | | Deferred measurement differences recognised during the year | - | (713) | (713) | | **Deferred measurement differences as at 31 March 2019** | - | 22,328 | 22,328 |

**Fair value measurement of CfDs**

The fair value of CfDs (which excludes the HPC CfD which has not been recognised in these accounts) represents the LCCC’s best estimate of the payments which the LCCC will be committed to make, if and when the generators supply low carbon electricity in accordance with their contractual terms. They are based upon the estimates of future electricity prices to forecast the potential liabilities using the Dynamic Dispatch Model (DDM) owned by the department.

Should no low carbon electricity be supplied in accordance with the contractual terms, then the LCCC is not under any obligation to make these payments. Fair value of CfDs (financial liabilities at fair value through profit and loss)

The following table shows the impact of the fair value of all CfDs which have been recognised in these accounts, classified under Level 3, by using the assumptions described below (all held by LCCC):

| | LCCC CfDs exc. HPC £m | Departmental Group Total £m | |--------------------------------|------------------------|-----------------------------| | Balance at 31 March 2017 | 31,413 | 31,413 | | Additions during the year | 4,612 | 4,612 | | Change in fair value during the year | 3,720 | 3,720 | | Payments to the CfD generators | (544) | (544) | | **Balance at 31 March 2018** | **39,201** | **39,201** | | Change in fair value during the year | (2,743) | (2,743) | | CfDs terminated during the year | (229) | (229) | | Payments to the CfD generators | (980) | (980) | | **Balance at 31 March 2019** | **35,249** | **35,249** |

The decrease in fair value year-on-year is mainly due to revisions to the wholesale price electricity forecasts that are expected to be achieved by generators and payments made during the 2018/19 year. These decreases are partially offset by the change in indexation for 2019. The actual cash payments made to generators during the lives of the contracts will vary, depending upon a number of key matters, such as projected wholesale electricity prices, commissioning dates for generation and the average load factor for each generator.

The fair value of the unquoted contracts has been estimated using a discounted cash flow model. This method involved the projection of a series of cash flows and application of a discount rate to establish the present value of the expenses associated with the liability. The valuation requires management to make certain assumptions about the model inputs, including cash flows, the discount rate, credit risk and volatility. Further information relating to the assumptions is included below.

**Key assumptions (excluding HPC CfD)**

The probabilities of the various estimates within the range can be reasonably assessed and are used in management’s estimate of fair value for these unquoted contracts. Annual cash flow is estimated as reference price less strike price multiplied by estimated generation delivered. The series of cash flows is then discounted using the HM Treasury discount rate of 0.7% (2017-18: 0.7%). The following assumptions are key to the CfD valuation:

a. **Transmission Loss Multiplier (TLM)**

TLM reflects the fact that electricity is lost as it passes through the transmission system from generators to suppliers. If the TLM is incorrect, this will have implications for the volume of electricity subject to CfD payments. Any change in TLM will be corrected through adjustments in strike prices although the change in TLM is expected to be immaterial.

b. **Start date**

Generators nominate a Target Commissioning Date (TCD) in their binding application form for a CfD, and this date is specified in their CfD following contract award. However, the generator is free to commission at any time within their Target Commissioning Window (TCW), a period of one year from the start of the TCW for most technologies, with no penalty, or after the end of the TCW and up to their ‘Longstop Date’ (one to two years after the end of the TCW depending on technology) with a penalty in the form of reduction of contract length for each day they are late in commissioning after the end of the TCW. The contract can be terminated if the generator has not commissioned 95% (or 85% for Investment Contracts and offshore wind) of their revised installed capacity estimate by the end of the Longstop Date. Any change to the start date will change the timing of future cash flows and impact on the discounted fair value. The valuation uses the most recent estimate from generators on the start date. c. **Strike price** The strike price is an agreed price which determines the payments made to the generator under the contract with reference to its low carbon output and the market reference price. The relevant strike price is specified in each CfD and is not intended to change for the duration of the project other than through indexation to CPI and certain network charges or in the event of certain qualifying change in law. The strike price used in the valuation of the CfDs is the 2019-20 strike price and reflects the CPI rate for January 2019 in-line with the requirements of the CfD contract.

d. **Future forecast wholesale electricity prices** Forecast wholesale electricity prices are derived from the DDM which has been developed by the department to facilitate/inform policy decisions by modelling investor behaviour in response to fuel and carbon prices and policy environment. The DDM estimates the wholesale price by:

- using the Short Run Marginal Cost (SRMC) for each plant
- using daily demand for electricity, taking into account wind profiles, inter-connector flows, pumped storage, auto-generation and wind generation
- using a mark-up on the price derived from historic data and the difference between marginal price and cost affected by reduced capacity

Economic, climate, policy, generation and demand assumptions are external inputs to the model including demand load curves for both business and non-business days and seasonal impacts. Specific assumptions can also be modelled for domestic and non-domestic sectors and smart meter usage.

The forecast trajectory of electricity prices is uncertain. In the valuation, the central case from the DDM has been used. The DDM also produces low and high cases. These have been included in the sensitivity analysis.

In the valuation, the wholesale price has been reduced to reflect the price the wind generator is likely to receive. Additionally, wholesale electricity forward prices have been used for the liquid trading horizon (covering the nearest 2 years period). On windy days, the price that wind generators receive is likely to be reduced. The effect of reduced prices for wind generation adds approximately £3.1 billion to the valuation.

e. **Installed capacity** The figure for the maximum installed capacity was provided by the generator in its application for a CfD and specified in its CfD contract following allocation. The installed capacity cannot be increased after contract signature, but can be reduced by the generator by no more than 25% with no penalty between contract signature and the completion of the first contractual milestone by its contractual deadline (i.e. the Milestone Requirement which must be completed 12 months after contract award). Thereafter the installed capacity figure can only be reduced by the generator for a permitted contractual construction event (which is a narrowly defined concept) or by the difference by which the relevant project has an installed capacity of 95% (or 85% in the case of offshore wind) of its current contractual installed capacity figure and 100%. The actual output of the generator will depend on the load factor.

f. **Load factor** Load factor is defined as the actual power output of a project as a proportion of its rated installed capacity. It is a percentage figure which is used to transform installed capacity into actual power output (generation). Load factor assumptions are based on reference factors published by the department for given technology types; however, actual power outputs are sensitive to technological and environmental factors which may impact actual cash flows. Plant specific load factors (where a minimum of 6 months’ generation data is available) is also available for consideration when valuing the CfDs. Sensitivity analysis (excluding HPC CfD)

The following table shows the impact on the fair value of CfDs, classified under Level 3 in accordance with IFRS 13 ‘Fair Value Measurement’, by using reasonable possible alternative assumptions:

Change in fair value of CfDs recognised in the accounts if:

| Change in fair value of CfDs recognised in the accounts if: | Favourable changes £m | Unfavourable changes £m | |------------------------------------------------------------|------------------------|-------------------------| | Electricity prices decrease by 10% | - | 2,857 | | Electricity prices increase by 10% | 2,857 | - | | 10% more load factor | - | 3,525 | | 10% less load factor | 3,525 | - | | Estimated Commissioning Date moves back by one year | 390 | - | | Generation starts at the earliest possible date | - | 184 | | DDM high case | 3,822 | - | | DDM low case | - | 5,625 |

The fair value is highly dependent upon the actual capacity generated once the plant is built and the electricity prices which will prevail at the time of generation. The favourable and unfavourable changes show how the impact of changes in capacity and prevailing electricity prices will affect the fair value of CfDs due to the change in the level of cash flows. The Group auditors continue to include an emphasis of matter paragraph in their audit certificate concerning the uncertainty around valuation of these CfD contracts.

Significant unobservable inputs

The following table discloses the valuation techniques and significant unobservable inputs for CfDs recognised at fair value and classified as Level 3 along with the range of values used for these significant unobservable inputs.

| Fair value of CfDs £m | Valuation technique | Significant unobservable input | Range Min - Max | Units | |-----------------------|---------------------|--------------------------------|-----------------|-------| | 2018 | 39,201 | DCF Future electricity prices | 37.13 - 63.25 | £/MWh | | 2019 | 35,249 | DCF Future electricity prices | 44.55 - 67.73 | £/MWh |

Hinkley Point C

The department entered into the Hinkley Point C (HPC) CfD on 29 September 2016. This project has a maximum lifetime generation cap of 910,000,000 MWh. The HPC contract will expire at the earlier of 35 years after the start date of the second reactor or when the total CfD payments made have reached the generation cap.

The valuation of HPC CfD requires that an assumption be made of wholesale electricity prices in each year to 2060. The department uses its Dynamic Despatch Model to develop scenario-based estimates of future wholesale electricity prices. This model currently extends only as far as 2050 and the department has therefore assumed flat wholesale prices for the ten years 2050-2060. Moreover there is an inherent limitation in accurate estimation beyond 2050 because there is a paucity of independent third-party information beyond this point from which to validate the department’s assumptions. The unavoidable uncertainty over possible scenarios so far into the future extend to a variety of factors including electricity demand, fossil fuel prices, generation mix, carbon prices and technology. Under IFRS the Conceptual Framework (2010) sets out the concepts which underlie the preparation and presentation of financial statements. The Conceptual Framework deals with, amongst other things, the definition, recognition and measurement of the elements from which financial statements are constructed. Paragraph 4.38 of the Conceptual Framework states that an element should be recognised in the accounts if:

a) it is probable that any future economic benefit associated with the item will flow to or from the entity

b) the item has a cost or value that can be measured with reliability (defined as: using information that is complete, neutral and free from error)

In comparison to other CfDs the department considers the CfD for HPC to be unique. The European Pressurised Reactor is a much more complex asset than the wind turbines or bio-mass generators associated with the department’s other CfDs. It has very high levels of safety, reinforcement and containment incorporated into the design, which make it more expensive and complex to build and result in a significant lead time before generation commences (planned for 2025). Until these challenges are overcome and the asset is built, no payments will be made by the department under the CfD. This unavoidably long lead time before generation commences is relevant to condition (a) above.

The HPC CfD contract duration is also more than double (35 years) the length of other CfDs (15 years) so far entered into by the department. This makes it considerably more challenging to provide a single point fair value estimate, as required for accounting purposes, as that requires estimation of future wholesale electricity prices in every year out to 2060. This means that there are considerable but unavoidable uncertainties in creating a fair value estimate for the HPC CfD because of the unusually long time period involved.

Uncertainty increases with time and so the choice of discount rate plays a significant part in determining how much uncertainty is weighted into a present value calculation; a higher discount rate places less weight on increasingly more uncertain later years of a present value calculation. For example, in conducting the economic appraisal for the HPC project the department used the social discount rate of 3.5% per year, as required by the HM Treasury Green Book. However for valuing financial instruments like CfDs the department is obliged to use the financial instrument discount rate of 0.7%, as required by the Government Financial Reporting Manual. Therefore, compared to an economic appraisal, a present value estimate for a financial instrument includes progressively more weight from the less certain later years of the appraisal period. For comparison, using the social discount rate leads to a valuation of £16.6 billion compared to £30.3 billion using the financial instrument discount rate of 0.7%.

This is particularly relevant to the HPC CfD fair value because external forecasts for wholesale electricity prices are not currently readily available beyond 2050. It has not been possible for the department to satisfactorily verify whether a single point fair value estimate for the HPC CfD is complete, neutral and free from error. (Verifiability is one of the qualitative characteristics of useful financial information for financial statements as set out in the Conceptual Framework.) The department has therefore concluded that for the time being the HPC CfD fails to meet the recognition criteria (b) as outlined above. Therefore, the HPC CfD has not been recognised as a transaction in these primary statements.

The department has nonetheless set out below its best estimation of the fair value of the contract, and the assumptions which have been considered in its valuation, in the interests of transparency. This follows a ‘Level 3’ methodology under IFRS 13 ‘Fair Value Measurement’, which allows for use of the entity’s own models and assumptions.

Fair value measurement of HPC

The department has set out below its best estimation of the fair value of the contract, and the assumptions which have been considered in its valuation. This follows a Level 3 methodology under IFRS 13 ‘Fair Value Measurement’, which allows for use of the entity’s own models and assumptions. This disclosure is consistent with IFRS 9 ‘Financial Instruments’ and in the prior years in accordance with IAS 39 ‘Financial Instruments’ where the initial recognition of a financial instrument like the HPC CfD requires a deferred liability disclosure rather than a transaction of the initial fair value estimate through the primary statements. The following table provides an analysis of the fair value of HPC, grouped into Levels 1 to 3 within the fair value hierarchy based on the degree to which the fair value is observable:

| | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | |------------------|------------|------------|------------|----------| | Balance at 31 March 2018 | - | - | 36,585 | 36,585 | | Balance at 31 March 2019 | - | - | 30,309 | 30,309 |

The department’s estimate of the fair value of the liabilities under the HPC CfD at 31 March 2019 is £30,309 million. This represents a £6,276 million (17%) decrease on the valuation prepared to 31 March 2018. The reduction year-on-year is mainly as a result of revisions to the wholesale electricity forecasts used within the valuation. In common with the other CfDs, payments made during the financial year will vary due to changes within projected wholesale electricity prices, commissioning dates for generation and the average load factor of the generator.

Information on other factors which impact on the fair value of HPC is set out below;

Start date The Target Commissioning Date (TCD: current expected start date) for reactor one and reactor two of the HPC project are 1 December 2025 and 1 June 2026 respectively.

The TCW for reactor one is 1 May 2025 to 30 April 2029. The TCW for reactor two is 1 November 2025 to 31 October 2029.

Any change to the start date will change the timing of future cash flows and impact on the discounted fair value.

Equity gain share for HPC The equity gain share mechanism consists of two separate components: (i) a mechanism to capture gains above specified levels where the HPC project outperforms relative to the original base case assumptions; and (ii) a mechanism to capture gains above specified levels arising from the sale of equity and economic interests (direct or indirect) in the HPC project.

In each case, as and when the Internal Rate of Return (IRR) thresholds are reached:

- If the relevant IRR is more than 11.4%, the LCCC will receive 30% of any gain above this level
- If the relevant IRR is more than 13.5%, the LCCC will receive 60% of any gain above this level.

Installed Capacity HPC which does not have an installed capacity cap, is only entitled to CfD payment support up to a Generation Cap of 910,000,000 MWh.

Strike price The strike price is an agreed price which determines the payments made to the generator under the contract with reference to its low carbon output and the market reference price. The relevant strike price is specified at £92.50 in real 2012 terms and is not intended to change for the 35 year contract duration, other than through indexation to CPI and certain network charges, or in the event of certain qualifying changes in law.

In addition to the factors mentioned above, HPC’s strike price change is also subject to the following three additional factors:

1. Construction gain share for HPC If the construction costs of HPC come in under budget, the strike price will be adjusted downwards so that the gain (or saving) is shared with the LCCC. The gain share is 50/50 for the first billion pounds, with savings in excess of this figure being shared 75% to the LCCC and 25% to the generator, NNB Generation Company (HPC) Limited (NNBG).

If the outturn cost of construction is less than assumed then by reducing the strike price the amounts paid out to NNBG under the CfD will reduce and hence the benefit of the lower construction costs is shared between NNBG and ultimately consumers. There is, however, no similar upward adjustment if the construction cost of HPC is over budget.

2. OPEX reopener for HPC The strike price may be adjusted upwards if the operational expenditure costs are more than assumed and downwards if they are less. There are two operational expenditure reopener dates, at 15 years and 25 years after the first reactor start date. The rationale behind the reopener is that the strike price is based on long-term assumptions on operational expenditure costs. The reopener provides a way of mitigating long-term cost risks for both parties.

3. Sizewell C strike price adjustment for HPC If a CfD in relation to Sizewell C is entered into before the reactor one start date then the applicable strike price shall be reduced with effect from the date of satisfaction of the Sizewell C condition by £3/MWh.

Sensitivity analysis Using a Level 3 technique to assess the value of the HPC CfD is permissible when there is no observable input against which to assess the valuation. The department has used internally generated models and assumptions consistent with an emissions pathway towards the government’s decarbonisation commitments to generate the wholesale electricity price scenarios used in the valuation of the HPC CfD. There is unavoidable uncertainty inherent in all such modelling and as such the results should be interpreted as a range of plausible scenarios rather than a single point value. However, IFRS13 ‘Fair Value Measurement’ requires that a single amount be declared for fair value and so to satisfy this condition the department has adopted its central scenario when valuing the HPC CfD. In the sensitivity analysis a high and a low case scenario have also been included.

To provide transparency for the reader it is important to highlight the uncertainty inherent in material values over a long period of time such is the nature of this CfD. The predicted price series from the DDM between 2025 and 2050 (flat-lined from 2050 to 2060) has a higher degree of certainty in the early years (2025-2050) and a lower degree of certainty in later years (2050-2060). This is due to the lack of available market data against which to judge the output. In the valuation, the DDM central case has been used. The department also publishes low and high cases. These have been included in the sensitivity analysis.

The department has illustrated some empirical impact of changes in assumptions on the fair value of the HPC CfD. These are shown in the table below:

| Change in fair value of HPC if: | Favourable changes £m | Unfavourable changes £m | |--------------------------------|-----------------------|-------------------------| | Electricity prices decrease by 10% | - | 4,967 | | Electricity prices increase by 10% | 4,967 | - | | At generation cap | - | 192 | | 10% less load factor | 3,031 | - | | Estimated commissioning date moves back one year | 368 | - | | Generation starts one year earlier | - | 389 | | Sizewell C strike price adjustment for HPC | 2,613 | - | | DDM Low Case | - | 10,753 | | DDM High Case | 4,370 | - |

## 10 Investments and loans in other public sector bodies

| | Ordinary shares | Public Dividend Capital | Other investments and loans | Core Department and Agencies Total | Elimination of shares and other investments and loans held in NDPBs | NDPBs Ordinary Shares | Departmental Group Total | |----------------------|-----------------|-------------------------|-----------------------------|-----------------------------------|---------------------------------------------------------------|-----------------------|--------------------------| | | £m | £m | £m | £m | £m | £m | £m | | **Balance at 1 April 2017** | 1,723 | 81 | 367 | 2,171 | (1,276) | 422 | 1,317 | | Additions | 393 | - | 243 | 636 | (556) | 30 | 110 | | Disposals | (7) | - | - | (7) | 7 | - | - | | Redemptions | - | - | (22) | (22) | 22 | - | - | | Impairments | 23 | - | - | 23 | (23) | - | - | | Revaluations | 214 | - | - | 214 | - | 8 | 222 | | Unwinding of discount| - | - | 1 | 1 | - | - | 1 | | Loans repayable within 12 months transferred to current assets | - | - | (20) | (20) | - | - | (20) | | **Balance at 31 March 2018** | 2,346 | 81 | 569 | 2,996 | (1,826) | 460 | 1,630 | | Additions | 125 | - | 305 | 430 | (352) | - | 78 | | Redemptions | - | - | (24) | (24) | 24 | - | - | | (Impairments) / Impairment reversal | (30) | - | - | (30) | 30 | - | - | | Revaluations | 38 | - | - | 38 | - | 29 | 67 | | Unwinding of discount| - | - | 1 | 1 | (1) | - | - | | Loans repayable within 12 months transferred to current assets | - | - | (63) | (63) | 46 | - | (17) | | **Balance at 31 March 2019** | 2,479 | 81 | 788 | 3,348 | (2,079) | 489 | 1,758 | 10.1 Ordinary Shares in other public sector bodies

| | Core Department and Agencies | 31 March 2019 | Core Department and Agencies | 31 March 2018 | |--------------------------------|------------------------------|---------------|------------------------------|---------------| | | £m | £m | £m | £m | | Balance at 1 April | 2,346 | 1,337 | 1,723 | 1,086 | | Additions | 125 | - | 393 | 30 | | Disposals | - | - | (7) | - | | (Impairments) / Impairment reversal | (30) | - | 23 | - | | Revaluations | 38 | 67 | 214 | 221 | | Reclassification | - | - | - | - | | Balance at 31 March | 2,479 | 1,404 | 2,346 | 1,337 |

Comprising

Ordinary Shares held within the Departmental boundary - held at cost

| | £m | £m | |--------------------------------|------------------------------|---------------| | Ordinary Shares held within the Departmental boundary - held at cost | 1,564 | - | | Ordinary Shares held outside the Departmental boundary - held at fair value | 915 | 1,404 | | Balance at 31 March | 2,479 | 1,404 | 2,346 | 1,337 |

Core Department

Ordinary Shares in other public sector bodies held within the Departmental boundary

In accordance with the FReM, ordinary shares held within the Departmental boundary are carried at historical cost less any provision for impairment. They are eliminated on consolidation.

British Business Bank Plc (BBB)

The core Department holds 1,496,407,933 ordinary shares (31 March 2018: 1,371,407,933), each with a nominal value of £1. BEIS made £125 million (31 March 2017: £300 million) of share capital additions in BBB during the year. The core Department’s holding had a cost of £1,496 million at 31 March 2019 (31 March 2018: £1,371 million).

The principal objective of the company is to address long-standing, structural gaps in the supply of finance and bring together in one place Government finance support for small and mid-sized businesses.

UK Green Infrastructure Platform (UK GIP)

On 17 August 2017, immediately after the sale of the Green Investment Bank (GIB), the core Department acquired 900 shares (90% of the share capital) of UK Green Infrastructure Platform Limited, each with a nominal value of £1.

UKGIP was acquired for £93 million and the recognition of a shareholder loan of £40 million. The core Department’s holding had a cost less provision for impairment of £65 million at 2018-19 (2017-18: £93 million). The total loan outstanding at 2018-19 was £8 million (2017-18: £31 million) which is included within the loans and investments in public sector bodies note.

UKGIP was established to enable Government to retain an interest in five existing GIB investments. The Green Investment Group is the remaining 10% shareholder. The primary activity of UK GIP is to hold green investments and identify opportunities to realise them in a way which returns best value for taxpayers’ money.

UK Shared Business Services Limited (UKSBS)

The core Department holds 62,016,358 non-voting shares and one voting share in UKSBS, held at cost less provision for impairment of £3 million at 31 March 2019 (31 March 2018: £3 million). The company is a specialist business services organisation that provides finance, procurement, grants, information systems and HR and payroll services to the public sector. Its main objective is to improve the economy, efficiency and effectiveness of corporate services to BEIS bodies.

**Low Carbon Contracts Company Limited (LCCC)** The core Department holds one ordinary share in LCCC with a nominal value of £1. The principal objective of the company is to be the counterparty to and manage Contracts for Difference (CfDs) throughout their lifetime.

**Electricity Settlements Company Limited (ESC)** The core Department holds one ordinary share in ESC with a nominal value of £1. The principal objective of the company is to oversee settlement of the Capacity Market agreements.

**Enrichment Holdings Limited (EHL)** The core Department holds two shares of £1 each in EHL with a nominal value of £2. EHL has been set up as a holding company, along with a subsidiary company, Enrichment Investments Limited (EIL), solely to hold the Government’s one third share in Urenco Limited, an entity operating in the civil uranium enrichment sector.

**BIS (Postal Services Act 2011) Company Limited** The core Department holds one ordinary share in BIS (Postal Services Act 2011) Company Limited with a nominal value of £1. The principal objective of the company is to dispose of the assets transferred to it from the Royal Mail Pension Plan (RMPP).

**South Tees Site Company Limited (STSC)** The core Department holds one ordinary share in STSC with a nominal value of £1. The principal objective of the company is to secure and manage the South Tees Site.

**Postal Services Holding Company Limited (PSH)** The Secretary of State for BEIS owns 50,005 ordinary shares in PSH which is 100% of the issued share capital at a historic cost of £430 million at 31 March 2019 (31 March 2018: £430 million). The Secretary of State for BEIS also owns one special share in PSH, relating to certain areas for which Special Shareholder’s consent is required. The core Department’s holding had a cost less provision for impairment of £nil at 31 March 2019 (31 March 2018: £nil million), due to a return of capital from PSH to BEIS core of £6.9 million during 2017-18. PSH is currently in the process of liquidation due to the cessation of its primary activities. The principal objective of the company prior to cessation was to hold and manage its shares in POL.

**Ordinary Shares held outside of the Departmental boundary** Shares held outside of the Departmental boundary are carried at fair value.

**Post Office Limited (POL)** The core Department holds 50,003 ordinary shares in POL at a nominal value of £1 each which is 100% of the issued share capital. There is a special share in POL (nominal value of £1) which is held directly by the Secretary of State for BEIS. This shareholding is held at fair value, but as there is no active market for these shares the net asset value of POL is considered to be a reasonable approximation for fair value. The fair value of the investments, held by the core Department, as at 31 March 2019 was £256 million (31 March 2018: £195 million). The principal objective of POL is to provide retail post office services through its national network of branches.

**British Nuclear Fuels Limited (BNFL)** The core Department holds 50,000 ordinary shares in BNFL at a nominal value of £1 each. The Secretary of State for BEIS holds 49,999 ordinary shares and the Treasury Solicitor holds one ordinary share.

The core Department’s shareholding is held at fair value, but because there is no active market for these shares the net asset value of BNFL is considered to be a reasonable approximation of fair value. The fair value as at 31 March 2019 was £324 million (31 March 2018: £324 million).

**Ordnance Survey Limited (OSL)** The core Department holds 34,000,002 ordinary shares in OSL at a nominal value of £1 each which is 100% of the issued share capital.

The shareholding is held at fair value, but as there is no active market for these shares the net asset value of OSL is considered to be a reasonable approximation for fair value. The fair value as at 31 March 2019 was £179 million (31 March 2018: £196 million).

The principal objective of OSL is to produce mapping products and mapping data information.

**NPL Management Limited (NPLML)** The core Department holds 57 ordinary shares in NPLML which is 100% of the issued share capital.

The shareholding is held at fair value, but as there is no active market for these shares the net asset value of NPLML is considered to be a reasonable approximation for fair value. The fair value as at 31 March 2019 was £78 million (31 March 2018: £85 million).

**NNL Holdings Limited (NNLH)** The core Department holds two shares of £1 each in NNLH with a nominal value of £1 each.

NNLH has been set up as a holding company, to hold all the shares in the National Nuclear Laboratory Limited.

The shareholding is held at fair value but because there is no active market for these shares the net asset value of NNLH is considered to be a reasonable approximation of fair value. The fair value as at 31 March 2019 was £79 million (31 March 2018: £78 million). NDPBs and other designated bodies

NDA subsidiaries

The NDA controls the following subsidiaries, all of which are outside the Departmental Group boundary and not consolidated into these accounts. The holdings are valued at fair value. As there is no active market, the net assets of the entities are considered the most appropriate approximation of fair value, and amounted to £489 million as at 31 March 2019 (31 March 2018: £459 million).

| Name | Country of incorporation | Nature of business | Holding entity | Proportion of ordinary shares held | |-------------------------------------------|--------------------------|--------------------------------------------------------|----------------|-----------------------------------| | Direct Rail Services Limited | UK | Rail transport services within the UK | NDA | 100% | | International Nuclear Services France SAS (i) | France | Transportation of spent fuel | NDA | 100% | | International Nuclear Services Japan KK (i) | Japan | Transportation of spent fuel | NDA | 100% | | International Nuclear Services Limited | UK | Contract management and the transportation of spent fuel, reprocessing products and waste | NDA | 100% | | NDA Properties Limited | UK | Property management | NDA | 100% | | Pacific Nuclear Transport Limited (i) | UK | Transportation of spent fuel, reprocessing products and waste | NDA | 68.75% | | Rutherford Indemnity Limited | Guernsey | Nuclear insurance | NDA | 100% |

(i) Ownership through International Nuclear Services Limited.

10.2 Public Dividend Capital (PDC)

| Companies House | UK Intellectual Property Office | Met Office | Total | |-----------------|---------------------------------|------------|-------| | £m | £m | £m | £m | | Balance at 1 April 2017 | 16 | 6 | 59 | 81 | | Additions | - | - | - | | Redemptions | - | - | - | | Impairments | - | - | - | | Balance at 31 March 2018 | 16 | 6 | 59 | 81 | | Additions | - | - | - | | Redemptions | - | - | - | | Impairments | - | - | - | | Balance at 31 March 2019 | 16 | 6 | 59 | 81 |

PDC is held by the core Department.

In accordance with the FReM, PDC is carried at historical cost less any impairment.

Companies House has been reclassified from a trading fund to a central government body. It is exempted from consolidation for 2018-19 and will be consolidated from 2019-20 onwards.

10.2.1 Share of net assets and results for Public Dividend Capital holdings outside the Departmental consolidation boundary

The department is required to disclose its share of the net assets and the results for the year of other public sector bodies, which are outside of the departmental boundary. The following disclosures relate to the Department’s trading funds. For all bodies, information for 2018-19 was derived from their draft unaudited accounts. The information for 2017-18 was derived from their audited accounts. The accounts were prepared on an IFRS basis, in accordance with the requirements of the FReM.

### 10.3 Other investments and loans in public sector bodies

| Core Department and Agencies | 31 March 2019 | Core Department and Agencies | 31 March 2018 | |-----------------------------|--------------|-----------------------------|--------------| | | £m | £m | £m | | Balance at 1 April | 569 | 211 | 367 | 150 | | Additions | 305 | 79 | 243 | 80 | | Repayments | (24) | - | (22) | - | | Unwind of discount | 1 | - | 1 | - | | Revaluations | - | - | - | 1 | | Loans repayable within 12 months transferred to current assets | (63) | (17) | (20) | (20) | | Balance at 31 March | 788 | 273 | 569 | 211 |

**Core Department**

Loans in other public sector bodies

The balance comprises a number of loans to public sector bodies, the most significant loans making up the balance are detailed below:

**Energy Efficiency Loans**

The core Department’s energy efficiency loans scheme was set up under the Environmental Protection Act 1990 to help businesses and public sector organisations reduce their energy costs by providing interest free loans for the implementation of energy efficiency projects. The total carrying amount with public sector bodies is £212 million at 31 March 2019 (31 March 2018: £180 million). The non-current element of the loans is £169 million at 31 March 2019 (31 March 2018: £141 million) included in the table above; the current element of these loans is £43 million at 31 March 2019 (31 March 2018: £39 million), which is included in note 16.

These loans are to non-consolidated public sector entities and are not eliminated on consolidation.

**Fleetbank Funding Limited Loan (Enable Funding programme)**

The core Department’s loan to Fleetbank Funding Limited is to provide funding to support the Enable Funding programme, managed by the British Business Bank. This was launched in November 2014 and aimed at improving the provision of asset and lease finance to smaller UK businesses.

The carrying amount of the Fleetbank Funding Limited loan is £339 million at 31 March 2019 (31 March 2018: £205 million). This loan is to an entity that is consolidated within these financial statements and the loan is eliminated on consolidation.

**Northern Powerhouse Investment Limited and Midlands Engine Investment Limited Loans**

The core Department has loans with Northern Powerhouse Investment Fund and Midlands Engine Investment Fund. The funds are matched by funding from the European Investment Bank. The funds are set up to provide commercially-focused finance to help small and medium sized enterprises start up and grow.

The carrying amount of the loan investments in these entities is £109 million at 31 March 2019 (31 March 2018: £63 million). The loans are accounted for at cost under IAS 27 and disclosed in the core Department and Agencies column.

These loans are to consolidated bodies and are eliminated on consolidation.

**10.4 Special Shares**

The Secretary of State holds one Special Share in each of the entities listed below. The list is a summary and not a comprehensive record of the terms of each respective shareholding. Further details can be obtained from the annual report and financial statements of each body or their Articles of Association.

The core Department does not recognise the special or ‘golden’ shares on its Statement of Financial Position.

| Body in which Share is held and type and value of Share | Significant terms of Shareholding | |--------------------------------------------------------|----------------------------------| | Postal Services Holding Company Limited. £1 Special Rights Preference Share | • Created in January 2001 (formerly called Royal Mail Holdings plc)\
• It may be redeemed at any time by the shareholder\
• The consent of the special shareholder is required for a number of decisions, including:

- Appointments to the Board (the special shareholder can also make appointments to the Board)
- Setting (and approving any material changes in) the remuneration packages of the Directors
- Borrowing
- Disposing of substantial assets of the business and shareholdings
- Voluntary winding-up of the company
- Varying certain of the company’s Articles of Association, including the rights of the special shareholder.\
  • Note: The company is now in members’ voluntary liquidation and control of its affairs has been passed to the Joint Liquidators. | | Body in which Share is held and type and value of Share | Significant terms of Shareholding | |--------------------------------------------------------|----------------------------------| | Post Office Limited (“POL”) £1 Special Rights Redeemable Preference Share | • Created in April 2012\
  • Special Shareholder is entitled to attend and speak at any general meeting or any meeting of any other class of shareholders of POL, but the Special Share does not carry voting rights or any other rights at any such meeting.\
  • It may be redeemed at any time by the Special Shareholder. POL cannot redeem the Special Share without prior consent of the Special Shareholder.\
  • The consent of the special shareholder is required for a number of decisions, including:
- Varying POL’s Articles of Association, including the rights of the special shareholder;
- Appointment or removal from office of any Director of POL;
- Approval of (including material variations) Directors’ remuneration and terms of employment;
- Adoption of (and any material variation in) POL’s strategic plan;
- Substantial alterations in the nature of the business carried on by POL;
- Sale of material assets in the absence of which POL would not be able to deliver its strategic plan;
- Incurring of any borrowing exceeding pre-set limits as agreed with HM Treasury;
- Issuing or allotment of shares or granting of share rights in the company; and
- Voluntary winding-up of the company or member of the group.
- Any transaction which will result in a commitment or liability – either individually or when taken together with related relevant transactions – of an amount in excess of £50m | | BAE Systems plc £1 Special Rights Preference Share | • Created in 1985 (but subsequently amended).\
  • No time limit.\
  • Provides for a 15% limit on any individual foreign shareholding, or group of foreign shareholders acting in concert, in the company.\
  • Requires a simple majority of the Board and the Chief Executive to be British.\
  • Requires any Executive Chairman to be British and, if both the Chairman and Deputy Chairman are non-executives, requires at least one of them to be British. | | Rolls Royce Holdings plc £1 Special Rights Non-Voting Share | • Created in 1987 (but subsequently amended and transferred to Rolls-Royce Holdings plc).\
  • No time limit.\
  • Provides for a 15% limit on any individual foreign shareholding, or group of foreign shareholders acting in concert, in the company.\
  • Requires a simple majority of the Board to be British.\
  • Allows either the Chairman or the Chief Executive to be either an EU or US citizen provided that the other is a British citizen.\
  • Provides for a veto over the material disposal of assets of the group.\
  • Provides for a veto for a proposed voluntary winding up. | | Body in which Share is held and type and value of Share | Significant terms of Shareholding | |--------------------------------------------------------|----------------------------------| | EDF Energy Nuclear Generation Group Limited (formerly British Energy Group plc) £1 Special Share | • British Energy Group plc Special Share created on 13 January 2005 and held jointly by the Secretary of State for Business, Energy and Industrial Strategy and the Secretary of State for Scotland.\
  • The consent of the Special Shareholder, which can only be refused on grounds of national security (except in relation to an amendment to the company’s Articles of Association), is required in respect of:
- various amendments to the company’s Articles of Association;
- any purchase of more than 15% of the company’s shares;
- the issue of shares carrying voting rights of 15% or more in the company;
- variations to the voting rights attaching to the company’s shares; and\
  the giving of consent in respect of the issue of shares by, the sale of shares in or amendments to the Articles of Association of various subsidiaries in certain cases. | | British Energy Bond Finance plc (formerly British Energy Holdings plc) £1 Special Share | • British Energy Holdings plc Special Share created on 13 January 2005 and held jointly by the Secretary of State for Business, Energy and Industrial Strategy and the Secretary of State for Scotland.\
  • The consent of the Special Shareholder, which can only be refused on grounds of national security (except in relation to an amendment to the company’s Articles of Association), is required in respect of:
- various amendments to the company’s Articles of Association; and\
  the giving of consent in respect of the issue of shares by, the sale of shares in or amendments to the Articles of Association of various subsidiaries in certain cases. | | EDF Energy Nuclear Generation Limited (formerly British Energy Generation Ltd) £1 Special Share | • British Energy Generation Ltd Special Share created in 1996 is held solely by the Secretary of State for Business, Energy and Industrial Strategy.\
  • The consent of the Special Shareholder, which can only be refused on grounds of national security (except in relation to an amendment to the company’s Articles of Association), is required in respect of:
- various amendments to the company’s Articles of Association;
- the disposal of any of the nuclear power stations owned by the company; and
- prior to the permanent closure of such a station, the disposal of any asset which is necessary for the station to generate electricity. | | British Energy Ltd (formerly British Energy plc) £1 Special Share | • British Energy plc Special Share created in 1996 is held solely by the Secretary of State for Business, Energy and Industrial Strategy.\
  • The consent of the Special Shareholder, which can only be refused on grounds of national security (except in relation to an amendment to the company’s Articles of Association), is required in respect of:
- various amendments to the company’s Articles of Association; and
- the giving of consent in respect of the issue of shares by, the sale of shares in or amendments to the Articles of Association of various subsidiaries in certain cases.\
  • The company has no significant assets or liabilities as a result of the restructuring scheme, which came into effect on 14 January 2005. |

### Body in which Share is held and type and value of Share

| Nuclear Liabilities Fund Ltd | £1 Special Rights Redeemable Preference Share | |-----------------------------|---------------------------------------------|

#### Significant terms of Shareholding

- Created in 1996.
- The Secretary of State for Business, Energy and Industrial Strategy has a Special ‘A’ Share (there is also a ‘B’ Share held by British Energy).
- The consent of the Special Shareholder is required for any of the following:
  - to change any of the provisions in the Memorandum of Association or Articles of Association;
  - to alter the share capital or the rights attached thereto;
  - the company to create or issue share options;
  - the ‘B’ Special Shareholder or any of the Ordinary shareholders to dispose or transfer any of their rights in their shares;
  - the company to pass a members voluntary winding-up resolution;
  - the company to recommend, declare or pay a dividend;
  - the company to create, issue or commit to give any loan capital;
  - the company to issue a debenture; or
  - the company to change its accounting reference date.

### 10.5 Membership Fund

The Secretary of State for Business, Energy and Industrial Strategy has a share in the membership fund of the Carbon Trust. The members’ fund at 31 March 2019 was £nil (31 March 2018: £nil).

### 11 Other financial assets

| Note | 31 March 2019 | 31 March 2018 | |------|---------------|---------------| | | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | | Balance at 1 April | £m | £m | £m | £m | | IFRS 9 adjustments | - | (429) | - | - | | Revised balance at 1 April | 1,170 | 3,907 | 1,485 | 4,083 | | Additions | 25 | 1,176 | 17 | 839 | | Repayments | (236) | (1,152) | (284) | (605) | | Effective interest | 29 | 29 | 39 | 39 | | Unwinding of discount | - | 2 | - | - | | Amortisation | - | - | - | (1) | | Revaluations | 212 | 182 | (83) | 23 | | Impairments | (4) | (69) | (4) | (57) | | Impairment reversals | - | 23 | - | 14 | | Balance at 31 March | 1,196 | 4,098 | 1,170 | 4,336 |

Comprising:

- Repayable launch investments 11.1 1,058 1,058 1,047 1,047
- Other loans and investments 11.2 138 3,040 123 3,289

Balance at 31 March 1,196 4,098 1,170 4,336 Other financial assets analysed between current and non-current assets:

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Due within twelve months | - | - | 142 | 142 | | Due after twelve months | 1,196 | 4,098 | 1,028 | 4,194 | | Total | 1,196 | 4,098 | 1,170 | 4,336 |

11.1 Repayable launch investments

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Balance at 1 April | 1,047 | 1,047 | 1,205 | 1,205 | | Repayments | (230) | (230) | (103) | (103) | | Effective interest | 29 | 29 | 39 | 39 | | Revaluations | 212 | 212 | (94) | (94) | | Balance at 31 March | 1,058 | 1,058 | 1,047 | 1,047 |

Repayable Launch Investments (RLI) are held by the core Department.

The core Department has determined that RLI are classified as ‘fair value through profit or loss financial assets’ in accordance with IFRS 9. Fair value gains and losses are therefore recognised directly in the SoCNE. In 2017-18, before the Departmental Group’s adoption of IFRS 9, they were classified as ‘available for sale financial assets’, under IAS 39 with fair value movements recognised in Other Comprehensive Income, rather than the SoCNE.

The core Department, under the provisions of the 1982 Civil Aviation Act, provides repayable launch investment to companies to fund a proportion of the non-recurring eligible design and development capital costs on civil aerospace development products. Each product supported is covered by separate contractual terms and conditions. Under these contracts, periodic repayments become due when products are delivered or at other specific points. The portfolio of investments is valued twice annually and the valuations are based on forecast annual income arising under each contract.

Measurement and carrying values

RLI contracts are initially recognised at fair value which is the transaction price. After initial recognition, the value is the discounted forecast value of future income streams, excluding accrued income which is included in receivables when products are delivered. The value of future income streams is predominantly driven by the core Department’s view of the applicable programme’s performance in the global market over the period of the contract’s life; a number of activities inform this view and some are described below.

The core Department uses a variety of sources to inform a forecast of deliveries for individual programmes. This can include using: an internal delivery forecast model and market share model, forecast delivery schedules and other data directly provided from the RLI recipient companies, publicly available aircraft delivery forecasts, specifically commissioned consultant programme forecasts as well as commentary and views from industry experts.

The approach taken is entirely dependent on the programme in question.

Other valuation variables include inflation measures – or proxies (such as RPI, RPIX, gilt rates and GDP deflators). Some contracts entitle the core Department to a share of aircraft or engine spare part and support income, and the valuation of these contracts is based on analysis of past income streams and forecasts of future demand. The forecast income streams are adjusted by inflation of 2.6% and then are discounted to present value using a constant discount rate of 3.5% representing the effective rate of return of the investment portfolio.

The carrying value of RLI is influenced by the interaction of key drivers such as aircraft or engine deliveries and economic variables. The core Department uses Monte-Carlo simulation to understand the effect of different scenarios for these drivers on the valuation of each contract. The core Department considers that the carrying value is a reasonable approximation of the fair value of RLI.

The carrying value of the investments derived from the discounted cash flow model at 31 March 2019 was £1,058 million (31 March 2018: £1,047 million). The historic cost, including repayments to date and excluding accrued income, of the portfolio at 31 March 2019 was £389 million (31 March 2018: £527 million).

**Sensitivity analysis**

The core Department has developed a Monte-Carlo based approach which uses the software package @Risk to assess the impact of uncertainty on forecast income, overall contract values, and enhance the robustness of the valuation process. Uncertainties are addressed by constructing different scenarios for the key drivers and then assigning probabilities to these scenarios to implement a Monte-Carlo simulation of the contracts on a contract-by-contract basis. The key variables include: programme development delays, changes to entry into service and out of service dates, production levels, market shares and economic variables used as inflation measures.

The contracts are highly complex and generally distinct from each other in their terms and structure, yet there are cases of significant interdependencies between contracts and correlations between variables.

The model is iterated ten thousand times to produce distributions of income for each contract and thus the overall portfolio. Each iteration of the model produces an income forecast. These are collated and used to form an income distribution. It is from this distribution that the value of the portfolio is calculated.

In order to give an assessment of potential volatility for the portfolio, we calculate the 5th and 95th percentiles from the income distribution - 90% of all the iterations outputted from the Monte-Carlo simulation lie between these particular percentile points. The lower (5th) and upper (95th) points which define this interval were £1,004 million and £1,090 million respectively, at 31 March 2019 (2017-18: £999 million and £1,076 million).

**Risk**

**Market Risk**

This constitutes the largest area of potential risk in the portfolio as the primary method of the calculation of income streams is based on the forecasts of aircraft or engine deliveries. The core Department uses internal analysis, company information and third-party information to forecast deliveries and ultimately future income on each investment over the life of the investment period. Deliveries in the short term are driven by variables which include manufacturer production plans, market cycles, customer demand and availability of financing. Medium and longer-term deliveries will be affected by overall market growth and the market attractiveness of an aircraft programme. A negative shift in outlook may result in the core Department not being able to recover its investment in whole or in part, although once deliveries have commenced some level of income is usually due to the core Department. The core Department aims to minimise risk of under-recovery of investments by carrying out a full evaluation of each business case submitted for launch investment support, and by monitoring programmes for the substantive life of the contracts to allow it to assess exposure to risks (including project risk, market risk and technical risk). Interest Rate Risk A number of the contracts use retail price indexes (such as RPI and RPIX) or other surrogates as a tool to inflate the value of income due to the core Department over time. As such there is a risk relating to the forecasting of these indexes and surrogates within the valuation, although we estimate that the risk is relatively low and the overall impact relatively minor.

Foreign Exchange Risk The core Department has a small number of contracts which may deliver a US Dollar denominated income in their later stages which would be translated into pounds sterling. We assess these income streams as relatively low value, thus exchange rate risk exists but is minimal in the context of the overall portfolio.

Credit Risk Company failure could result in the core Department’s investment not being recovered in whole or in part. The core Department seeks to offset this low probability risk by analysing the financial health of any applicant at the time of application for launch investment and reviewing financial health as part of the programme monitoring activity. In addition, contracts aim to contain provisions which will (as a minimum) not disadvantage the core Department compared to other creditors in the event of a corporate failure. The core Department takes steps to monitor the payments that become due to companies under launch investment contracts to ensure they comply with the terms of the contracts. Finally, the contracts also require the company’s auditors to confirm that all payments have been made correctly and to identify any errors made.

Other Risk The core Department’s investments are exposed to wider risks such as economic downturns or market shocks from natural or non-natural events. These risks may adversely impact the value and timing of the income received by the core Department. The core Department seeks to manage this risk by actively monitoring such events when they arise to assess any potential impact.

### 11.2 Other loans and investments

| | Gilts and bonds £m | Term deposits £m | Private sector loans £m | Property related holdings £m | Private sector shares £m | Equities (listed securities) £m | Private equities £m | Investment funds £m | Other investments £m | Total £m | |----------------------|--------------------|------------------|-------------------------|-----------------------------|-------------------------|---------------------------------|-------------------|-------------------|---------------------|---------| | **Balance at 1 April 2017** | 46 | 14 | 423 | 65 | - | 266 | 443 | 1,245 | 376 | 2,878 | | Additions | 12 | - | 306 | - | - | - | 7 | 299 | 215 | 839 | | Redemptions | - | - | (111) | (23) | - | (18) | (98) | (220) | (32) | (502) | | Revaluations | 1 | - | (3) | - | - | 21 | (35) | 23 | 110 | 117 | | Impairments | - | - | (17) | - | - | - | - | (40) | - | (57) | | Impairment reversals | - | - | - | - | - | - | - | 14 | - | 14 | | **Balance at 31 March 2018** | 59 | 14 | 598 | 42 | - | 269 | 317 | 1,321 | 669 | 3,289 | | IFRS 9 adjustment - transfers between categories | - | - | 61 | (42) | 99 | (269) | (317) | 544 | (76) | - | | IFRS 9 adjustment - Other | (1) | - | 2 | - | - | - | - | 31 | (461) | (429) | | **Revised balance at 1 April 2018** | 58 | 14 | 661 | - | 99 | - | - | 1,896 | 132 | 2,860 | | Additions | 8 | - | 391 | - | 108 | - | - | 660 | 7 | 1,174 | | Redemptions | (25) | (1) | (228) | - | (24) | - | - | (616) | (28) | (922) | | Revaluations | - | - | - | - | (16) | - | - | 28 | (43) | (31) | | Unwinding of discount| 2 | - | - | - | - | - | - | - | - | 2 | | Impairments | - | - | (63) | - | (3) | - | - | - | - | (66) | | Impairment reversals | - | - | 23 | - | - | - | - | - | - | 23 | | Loans provided for in year | - | - | - | - | - | - | - | - | - | - | | **Balance at 31 March 2019** | 43 | 13 | 784 | - | 164 | - | - | 1,968 | 68 | 3,040 | | Of the total: | | | | | | | | | | | | Core Department and Agencies | - | - | 2 | - | 46 | - | - | 90 | - | 138 | | NDPBs and other designated bodies | 43 | 13 | 782 | - | 118 | - | - | 1,878 | 68 | 2,902 | | **Balance at 31 March 2019** | 43 | 13 | 784 | - | 164 | - | - | 1,968 | 68 | 3,040 | Core Department

Investment Funds

Investment funds are classified as ‘fair value through profit or loss’ (FVTPL) financial assets and are measured at fair value in accordance with IFRS 9. Fair value gains and losses are recognised directly in the SoCNE. In 2017-18 prior to the adoption of IFRS 9, they were classified as ‘available for sale financial assets’ and measured at fair value in accordance with IAS 39 with fair value movements recognised in Other Comprehensive Income, rather than the SoCNE.

After initial recognition, the fair value is based upon the valuations prepared by the fund managers. They are taken from the most recent set of annual accounts for each of the funds and, where available, updated with interim fund manager valuations. These investments support private sector led venture capital to stimulate private investment into early stage small and medium-sized enterprise (SME) businesses.

NDPBs and other designated bodies

Gilts and Bonds

The Nesta Trust holds investments in bonds. The investments in corporate bonds are measured at ‘amortised cost’ in accordance with IFRS 9. In 2017-18, prior to the adoption of IFRS 9, under IAS 39, they were classified as ‘available-for-sale financial assets’, and measured at fair value based on market quotes (31 March 2018: £59 million).

Private sector loans

British Business Bank (BBB), Fleetbank Funding Ltd (FFL) and UK Research and Innovation (UKRI) have entered into loan agreements with parties within the private sector. The loans within the Departmental Group are carried at historic cost as a proxy for amortised cost because the NDPBs and other designated bodies have determined that there is no material difference between historical cost and amortised cost. As part of the review undertaken on financial instruments on transition to IFRS 9, it was identified that £61 million of financial instruments held by BBB that were disclosed as an investment fund, and would be more appropriately disclosed as a private sector loan. The balance at 31 March 2018, has been transferred to the Private Sector Loan category. Remeasurement of the loan value including related expected credit losses has led to an adjustment on adoption of IFRS 9 of £2 million to BBB’s private sector loans.

As at 31 March 2019, £784 million of loans were held by NDPBs and other designated bodies (31 March 2018: £598 million).

The value of loans held by BBB as at 31 March 2019 was £432 million (31 March 2018: £397 million). The conditions attached to each loan vary depending on the details of the arrangement. Repayment schedules have been agreed and all loans are expected to be repaid at the end of the loan term. During the reporting period BBB made loans of £26 million (31 March 2018: £239 million) to private companies through the BFP Small Business and Investment Programme schemes. BBB provides invoice discount finance and peer to peer lending through the Investment Programme funds which were valued at £233 million at 31 March 2019 (31 March 2018: £242 million).

During 2018-19, FFL made loans of £141 million (31 March 2018: £66 million) to private companies through the Enable Loan Programme scheme. The value of loans held by FFL as at 31 March 2019 was £330 million (31 March 2018: £189 million).

Property related holdings

These holdings relate to a number of marketable real estate investment funds and were assessed as part of the transition to IFRS 9 and transferred to the Investment Funds category within note 11.2. These assets are measured at ‘fair value through profit and loss’ (FVTPL) in accordance with IFRS 9, with their fair value movements recognised directly in the SoCNE. In 2017-18, prior to the adoption of IFRS 9, under IAS 39, they were held as ‘available for sale financial assets’. Private Sector Shares, Equities (listed securities) and Private equities

At 31 March 2019 the Departmental Group held £164 million of private sector shares. These were held by BIS (Postal Services Act 2011) Company Ltd, Nesta Trust and UKRI. These are measured at ‘fair value through other comprehensive income’, with movements going through the statement of taxpayers’ equity and other reserves.

Private Sector shares were split between listed securities and private equities as at 31 March 2018. Following the IFRS 9 review, reclassification between categories has been made to ensure a consistent disclosure. In particular, £39 million of listed securities and £3 million of private equities were transferred into private sector shares, with the remainder £544 million (made up of £230 million Equities (listed securities) and £314 million Private Equities) being transferred to investment funds. In addition, £25 million was reclassified from Other investments to Private Sector shares and £32 million was reclassified from investment funds, relating to holdings in private sector shares.

The fair values are estimated based on a variety of valuation techniques, adopted by the investment managers that comply with the International Private Equity and Venture Capital (PEVC) Valuation Guidelines or the valuation guidelines produced by the British Venture Capital Association (BVCA). Valuation techniques used include the use of earnings multiples, discounted cash flows analysis, and net asset values.

Investment Funds

BBB, Nesta Trust, BIS (Postal Services Act 2011) Company Limited, Northern Powerhouse Investment Limited and Midlands Engine Investments Limited hold investment funds. The value invested at 31 March 2019 was £1,968 million (31 March 2018: 1,321 million). In accordance with IFRS 9, the investments are measured at ‘fair value through profit or loss’ with fair value movements going directly to the SoCNE. In 2017-18, prior to the adoption of IFRS 9, under IAS 39 they were classified as ‘available-for-sale financial assets’ with fair value movements recognised in Other Comprehensive Income. As part of the implementation review for IFRS 9, it was identified that financial investments of £42 million previously disclosed as Property, Related Holdings, £230 million previously disclosed as Equities (listed securities), £314 million previously disclosed as Private equites and £50 million previously disclosed as Other investments, were reclassified as Investments Funds which better represent their nature. £61 million was transferred out of investment funds to private sector loans, and £31 million was transferred out into private sector shares.

BBB held investment funds valued at £1,281 million at 31 March 2019 (31 March 2018: £1,195 million). The most significant investment is in the Business Finance Partnership (BFP) for medium sized businesses at 31 March 2019, this was valued at £435 million (31 March 2018: £551 million). The BFP aims to increase the supply of capital through non-bank lending channels and, in the longer term, to help to diversify the sources of finance available to businesses. BBB also has an investment fund in Enterprise Capital Funds which were valued at £222 million at 31 March 2019 (31 March 2018: £182 million).

The fair value of the investments in BIS (Postal Services Act 2011) Company Ltd as at 31 March 2019 was £254 million (31 March 2018: £305 million). These investments primarily comprised investments in European and North American unquoted shares.

Under IFRS 9, embedded derivatives are no longer assessed separately from the host instrument, leading to the transfer of BBB’s £31 million of embedded derivatives to the investment fund category, prior to the adoption of IFRS 9, under IAS 39 this was disclosed as a Derivative.

Other Investments

Other investments includes UK Green Infrastructure Platform Ltd investments which are classified as ‘fair value through profit and loss’ in accordance with IFRS 9. The fair value of these investments as at 31 March 2019 was £58 million (31 March 2018: £132 million). Investments included within this category as at 31 March 2018 were assessed under IFRS 9 and transferred to more appropriate categories accordingly. 12 Recoverable contract costs

The Group has commercial agreements in place under which some or all of the expenditure required to settle nuclear provisions will be recovered from third parties. Net recoverable costs at 31 March 2019 were £1,620 million (31 March 2018: £3,346 million).

| Recoverable contract costs relating to nuclear provisions | Departmental Group 31 March 2019 | Departmental Group 31 March 2018 restated | |----------------------------------------------------------|----------------------------------|------------------------------------------| | Gross recoverable contract costs | 5,046 | 7,081 | | Less applicable payments received on account | (3,092) | (3,192) | | Less associated contract loss provisions | (334) | (543) | | **Balance at 31 March** | **1,620** | **3,346** |

The Gross recoverable contract costs disclosed in the BEIS 2017-18 Annual Report and Accounts has been restated to be align with the Nuclear Decommissioning Authority’s disclosure. This has increased the Gross recoverable contract costs by £292 million and increased the amount deducted from the associated contract loss provision of (£292) million. This is solely a disclosure adjustment, as BEIS discloses the net position for Recoverable contract costs, Nuclear decommissioning provision, Contract loss provision (Note 19) and Payments received on account disclosed in Trade and other receivables, which are unaffected by the disclosure change as the net values were correctly reported in the BEIS 2017-18 Annual Report and Accounts.

The above balances relate to the Nuclear Decommissioning Authority. The movements in gross recoverable contract costs during the year were:

| Departmental Group 31 March 2019 | Departmental Group 31 March 2018 restated | |----------------------------------|------------------------------------------| | **Gross recoverable contract costs at 1 April** | **7,081** | **6,885** | | Increase/(decrease) in year | (1,510) | 764 | | Unwinding of discount | (83) | (49) | | Release in year - continuing operations | (276) | (291) | | Amortisation of recoverable contract costs | (166) | (228) | | **Gross recoverable contract costs at 31 March** | **5,046** | **7,081** |

The gross balance of recoverable contract costs of £5,046 million (31 March 2018 restated: £7,081 million) comprises £1,617 million (31 March 2018: £1,783 million) of past costs which were incurred before the revenue recognition period of the related contracts and will be amortised in future years in line with revenue and £3,429 million (31 March 2018 restated: £5,298 million) of probable future costs which form part of the nuclear decommissioning provision (Note 19) and will be released as they are incurred. Further details are published in the NDA's accounts. The movement in the gross recoverable contract costs during the year broken down by the type of costs are detailed in the table below:

| Departmental Group | Historic costs £m | Future costs £m | Total costs £m | Historic costs £m | Future costs £m | Total costs £m | |--------------------|------------------|----------------|---------------|------------------|----------------|---------------| | **Balance at 1 April** | 1,783 | 5,298 | 7,081 | 2,011 | 4,874 | 6,885 | | Increase in the year | - | (1,510) | (1,510) | - | 764 | 764 | | Unwinding of discount | - | (83) | (83) | - | (49) | (49) | | Amortisation | (166) | - | (166) | (228) | - | (228) | | Release in year | - | (276) | (276) | - | (291) | (291) | | **Balance at 31 March** | 1,617 | 3,429 | 5,046 | 1,783 | 5,298 | 7,081 |

The historic costs within the above are deemed contract assets under IFRS 15 ‘Revenue from Contracts with Customers’. The opening balances, amortisation in period and closing balances for each main contract type are:

| Departmental Group | Spent fuel reprocessing and associated waste management £m | Spent fuel receipt and management £m | Total £m | Spent fuel reprocessing and associated waste management £m | Spent fuel receipt and management £m | Total £m | |--------------------|----------------------------------------------------------|-----------------------------------|----------|----------------------------------------------------------|-----------------------------------|----------| | **Balance at 1 April** | 1,162 | 621 | 1,783 | 1,358 | 653 | 2,011 | | Amortisation | (136) | (30) | (166) | (196) | (32) | (228) | | **Balance at 31 March** | 1,026 | 591 | 1,617 | 1,162 | 621 | 1,783 |

Contract assets under IFRS15 are deemed financial instruments for the purposes of IFRS 9 ‘Financial Instruments’ and, therefore, are ordinarily required to be reviewed for expected credit loss impairment. The above contract asset balances comprise costs which have been previously incurred and are now being amortised in each reporting period. They are matched in full by payments on account and, therefore, a credit loss impairment is not required. 13 Investments in Joint Ventures and Associates

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Balance at 1 April | - | 367 | - | 347 | | Opening balance transfer of investments | - | 461 | - | - | | Revised balance at 1 April | - | 828 | - | 347 | | Additions | - | 37 | - | 7 | | Dividends | - | (87) | - | - | | Disposals | - | - | - | (1) | | Profit/(Loss) | - | 186 | - | 1 | | Impairments | - | (1) | - | - | | Revaluations | - | 76 | - | 13 | | Balance at 31 March | - | 1,039 | - | 367 |

**NDPBs and other designated bodies**

**The Francis Crick Institute Limited**

United Kingdom Research and Innovation (UKRI) and United Kingdom Atomic Energy Authority (UKAEA) have joint ventures and/or associates. The most significant holding is the Francis Crick Institute Limited (the Crick).

The Crick was established in 2010 to deliver a world class interdisciplinary biomedical research centre. UKRI holds 42% (31 March 2018: 42%) of the ordinary shares in the Institute. The remaining shares are held by Cancer Research UK, University College London, the Wellcome Trust, Kings College London and Imperial College of Science, Technology and Medicine. The Institute became fully operational in 2016-17 following the completion of the Crick building. Accordingly, the value of the Departmental Group’s investment at 31 March 2019 is £304 million (31 March 2018: £254 million), reflecting Departmental Group’s share of net assets. This includes a £48 million upwards revaluation adjustment in 2018-19 (2017-18: £nil million) which aligns the Crick’s property, plant and equipment accounted for under the ‘historic cost’ model to the Departmental Group’s revaluation model.

The principal place of business is Midland Road, London.

**The results of the Crick are summarised below:**

| Summarised financial information | 2018-19 £m | 2017-18 £m | |---------------------------------|------------|------------| | Current assets | 85 | 52 | | Non-current assets | 559 | 580 | | Current liabilities | (34) | (26) | | Revenue | 153 | 146 | | Profit/(loss) from continuing activities | 4 | (28) |

| Other financial information | 2018-19 £m | 2017-18 £m | |---------------------------------|------------|------------| | Cash and cash equivalents | 34 | 39 | | Depreciation and amortisation | (39) | (40) | | Capital commitments | 4 | 4 | **NDPBs and other designated bodies**

**Reclassification of URENCO**

All investment classifications and accounting judgements have been re-assessed as part of the adoption of IFRS 9 in 2018-19, and this includes the Department’s 33% ordinary share holding in URENCO through Enrichment Holdings Limited (EHL). As a result of the re-assessment, URENCO has been reclassified as an associate from 1 April 2018 at a value of £456 million, with the Department’s share of dividends, profit, and revaluation in 2018-19 being £87 million, £151 million and £31 million respectively. The department’s holding is valued at £551 million. For further details on the changes to the disclosure of income related to URENCO, see note 6.2.

The principal place of business is Bells Hill, Stokes Poges, Buckinghamshire.

| Summary financial information | 2018-19 £m | |------------------------------|------------| | Current assets | 804 | | Non-current assets | 4,846 | | Current liabilities | (351) | | Non-current liabilities | (3,646) | | Revenue | 1,732 | | Profit/(loss) from continuing activities | 452 |

| Other financial information | 2018-19 £m | |-----------------------------|------------| | Cash and cash equivalents | 216 | | Current financial liabilities (excl trade and other payables and provisions) | (30) | | Non-current financial liabilities (excl trade and other payables and provisions) | (1,848) | | Depreciation and amortisation | (284) | | Amortisation of intangible assets | (7) | | Interest income | 61 | | Interest expense | (155) |

### 14 Trade and other receivables

| Amounts falling due within one year: | Core Department and Agencies £m | Departmental Group £m | Core Department and Agencies £m | Departmental Group £m | |-------------------------------------|---------------------------------|-----------------------|---------------------------------|-----------------------| | Trade receivables | 109 | 743 | 97 | 433 | | Other receivables: | | | | | | VAT and other taxation | 22 | 144 | 20 | 133 | | Staff receivables | 2 | 3 | 1 | 2 | | RPS receivables | 57 | 57 | 128 | 128 | | Other | 143 | 184 | 196 | 262 | | Contract Assets | 6 | 38 | - | - | | Prepayments and accrued income | 108 | 399 | 102 | 385 | | **Total** | **447** | **1,568** | **544** | **1,343** |

| Amounts falling due after more than one year: | Core Department and Agencies £m | Departmental Group £m | |------------------------------------------------|---------------------------------|-----------------------| | Trade receivables | 9 | 59 | 17 | 75 | Other receivables held by the core Department include a discounted receivable of £920 million (31 March 2018: £1,033 million) relating to the Government guarantee of certain benefits payable to members and beneficiaries of the Mineworkers’ Pension Scheme made after privatisation of the British Coal Corporation in 1994. The undiscounted amount is £1,058 million. The agreement relating to the guarantee entitles the Government to a portion of any periodic valuation surpluses, generally determined by the Government Actuary following triennial valuations, the most recent valuation was at 30 September 2017. The receivables have been classified as Amortised Cost assets in accordance with IFRS 9: Financial Instruments. In accordance with IFRS 9 the receivable is initially recognised at fair value which equates to the future cash flows being discounted at HM Treasury’s financial instrument nominal rate of 3.7%. Income of £475 million was recognised in 2018-19 (2017-18: £742 million) in relation to an additional sum receivable from the September 2017 valuation (note 6.1). A contingent asset in relation to a similar financial guarantee for the British Coal Staff Superannuation Scheme is disclosed in note 25. More information about the pension schemes can be found at http://www.mps-pension.org.uk and https://www.bcsss-pension.org.uk.

From 1 April 2018, the responsibility for the Redundancy Payment Service (RPS) was transferred from the core Department to the Insolvency Service (INSS). This was accounted for in accordance with the FReM as a Transfer by Absorption, where the carrying value of the RPS Receivable on 1 April 2019 was transferred to INSS. The RPS debtor was transferred out of the core Department in to INSS and as the income and expenditure from 1 April 2018 is incurred by INSS, the comparatives for the core Department have not been restated in line with the FReM guidance for a Transfer by Absorption. The Redundancy Payment Service (RPS) receivable is shown net of an annual impairment.

The impairment is calculated by the Insolvency Service using a model which is approved by HMRC. The model calculates the recoverable debt as £57 million as at 31 March 2019 (31 March 2018: £128 million). Previously the rate of recoverability was estimated at 14%. It was recognised that there was a risk that this was over-optimistic and therefore could result in a downward revision in future years. In line with IFRS 9, RPS debts have been grouped into similar types, in this case they have been grouped between preferential or non-preferential debts. Analysis of historic trends of recovery of these types of debts has revealed that the best estimate of recovery is 5.5% for non-preferential, and 40.7% for preferential, as opposed to the overall 14% previously utilised. 15 Non-current assets and liabilities held for sale

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Balance of assets at 1 April | - | 15 | 1,517 | 2,609 | | Additions and reclassifications| - | - | 50 | (12) | | Disposals | - | - | (1,567) | (2,582) | | Revaluations | - | 5 | - | - | | Carrying amount of assets at 31 March | - | 20 | - | 15 | | Balance of liabilities at 1 April | - | - | - | (1,000) | | Disposals | - | - | - | 1,000 | | Carrying amount of liabilities at 31 March | - | - | - | - | | Carrying amount of net assets at 31 March | - | 20 | - | 15 |

The 2017-18 disposal related to the sale of the core Department’s shareholding in Green Investment Bank (GIB) to Macquarie Group Limited for £1,753 million, against a carrying value of £1,567 million, resulting in a profit on disposal of £186 million, which is disclosed on the face of the Statement of Comprehensive Net Expenditure in the core Department.

In the Departmental Group, the net assets at the date of disposal were £1,561 million, resulting in a profit on disposal of £202 million. Further details of the sale can be found in last year’s financial statements.

No new assets or liabilities have been held for sale in 2018-19.

16 Investments and loans in public sector bodies: current

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |--------------------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Balance at 1 April | 732 | 732 | 682 | 682 | | Additions | 6,240 | 6,240 | 7,198 | 7,198 | | Repayments | (6,369) | (6,369) | (7,168) | (7,168) | | Loans repayable within 12 months transferred from non-current assets | 63 | 17 | 20 | 20 | | Balance at 31 March | 666 | 620 | 732 | 732 |

The most significant item included above is a loan facility to Post Office Limited (POL). Since October 2003 the core Department has made available to POL a revolving loan facility of up to £950 million. This is to help the company fund its daily in-branch working capital requirements to deliver services through the network, such as social benefits payments and access to cash. The facility was due to mature in March 2018 but was extended to run until 31 March 2021. The outstanding balance at 31 March 2019 was £565 million (31 March 2018: £644 million) which is included in the £666 million (31 March 2018: £732 million) above.

### 17 Cash and cash equivalents

| | Core Department and Agencies | 31 March 2019 | Core Department and Agencies | 31 March 2018 | |----------------------|-----------------------------|---------------|-----------------------------|---------------| | | £m | £m | £m | £m | | **Balance at 1 April** | | | | | | | 1,246 | 2,034 | 1,192 | 1,819 | | **Net change in cash and cash equivalent balances** | 37 | 54 | 54 | 215 | | **Balance at 31 March** | 1,283 | 2,088 | 1,246 | 2,034 | | **The following balances at 31 March were held at:** | | | | | | The Government Banking Service (GBS) | 1,282 | 1,828 | 1,244 | 1,818 | | Commercial banks and cash in hand | 1 | 260 | 2 | 216 | | **Balance at 31 March** | 1,283 | 2,088 | 1,246 | 2,034 |

### 18 Trade payables and other liabilities

| | Core Department and Agencies | 31 March 2019 | Core Department and Agencies | 31 March 2018 | |----------------------|-----------------------------|---------------|-----------------------------|---------------| | | £m | £m | £m | £m | | **Amounts falling due within one year:** | | | | | | VAT, social security and other taxation | 10 | 108 | 7 | 102 | | Trade payables | 79 | 195 | 14 | 461 | | Other payables | 552 | 1,020 | 68 | 365 | | Contract Liabilities | 5 | 474 | - | - | | Other accruals and deferred income | 979 | 2,569 | 948 | 2,779 | | Amounts issued from the Consolidated Fund for supply but not spent at year end | 1,280 | 1,280 | 928 | 928 | | Advances from Contingencies Fund | - | - | 2 | 2 | | Consolidated Fund Extra Receipts due to be paid to the Consolidated Fund: | | | | | | Received | 3 | 6 | 316 | 317 | | **Total** | 2,908 | 5,652 | 2,283 | 4,954 | | **Amounts falling due after more than one year:** | | | | | | Trade Payables | - | 7 | - | - | | Contract Liabilities (see note 18.1) | - | 1,691 | - | - | | Other payables, accruals and deferred income | 1,141 | 1,203 | 1,203 | 2,901 | | **Total payables at 31 March** | 4,049 | 8,553 | 3,486 | 7,855 | 18.1 Contract Liabilities

| | Core Department and Agencies | 31 March 2019 Departmental Group | |--------------------------------|------------------------------|----------------------------------| | **Balance at 1 April** | - | - | | IFRS 15 Adjustment to opening balances | - | 2,290 | | **Revised balance at 1 April** | - | 2,290 | | Additions | 5 | 703 | | Release to SOCNE | - | (828) | | **Balance at 31 March** | 5 | 2,165 | | Of which: | | | | Due within 1 year | 5 | 474 | | Due in over 1 year | - | 1,691 | | **Balance at 31 March** | 5 | 2,165 |

Included under accruals and deferred income are:

**Core Department**

Promissory note liabilities with maturities of less than one year of £284 million (31 March 2018: £276 million) and with maturities greater than one year of £1,140 million (31 March 2018: £1,202 million) which represent amounts owed for various ODA (Official Development Assistance) programmes to which the core Department has contributed.

During the year the British Business Bank (BBB) loaned the £600 million (2017-18; nil million) un-invested portion of its loan from the Nuclear Liabilities Fund (NFL), £350 million in August 2018 and a further £250 million in December 2018, to the core Department. £75 million of the loan was repaid before the year end. The remaining balance of £525 million is held in Other payables due within one year. Since it is an intercompany transaction, it is eliminated from the Departmental Group balance. See more detail on the NLF loan in the narrative for NDPBs and other designated bodies that follows.

**NDPBs and other designated bodies**

The majority of contract liabilities are the sums received on account by the Nuclear Decommissioning Authority relating to income from long term contracts to be recognised within one year of £461 million (31 March 2018: £680 million) and after one year of £1,691 million (31 March 2018: £1,594 million); more details are available in the accounts of the Nuclear Decommissioning Authority.

Included in Other payables due within one year in the table above is a loan to BBB from the Nuclear Liabilities Fund (NLF). In August 2018 BBB received a loan from the NLF, a non-consolidated public corporation of the Departmental Group. The purpose of this is for the NLF to achieve a higher rate of return than it has on its investments in the National Loan Fund in previous years. The carrying amount of the borrowing from NLF as at 31 March 2019 was £604 million (31 March 2018: £nil million).

## 19 Provisions for liabilities and charges

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | £m | 31 March 2018 | £m | | Current liabilities: | | | | | | Not later than one year | 260 | 3,050 | 278 | 3,332 | | Total current liabilities | 260 | 3,050 | 278 | 3,332 | | Non-current liabilities: | | | | | | Later than one year and not later than five years | 883 | 12,235 | 944 | 12,963 | | Later than five years | 1,037 | 119,181 | 1,232 | 224,640 | | Total non-current liabilities | 1,920 | 131,416 | 2,176 | 237,603 | | Total at 31 March | 2,180 | 134,466 | 2,454 | 240,935 | | Total provisions | | | | | | Nuclear | 19.1 | 1,346 | 131,094 | 1,412 | 235,101 | | Other | 19.2 | 834 | 3,372 | 1,042 | 5,834 | | Total at 31 March | 2,180 | 134,466 | 2,454 | 240,935 |

The provision liabilities in tables 19.1 and 19.2 below have been discounted to present value using discount rates as provided by HM Treasury who have required a change in the approach to discounting as at 31 March 2019 compared to prior years. Discounting as at 31 March 2018 was applied to real forward cash flows at constant prices as at that date. Discounting as at 31 March 2019 has been applied to nominal cash flows which include allowance for future inflation using a forecast of consumer price inflation provided by HM Treasury except where a more appropriate forecast has been identified for specific provisions. The impact of the change in the discounting approach is included in the “Change in discount rate” movement of provisions.

| Nominal discount rate | 31 March 2019 | Equivalent real discount rate | 31 March 2018 | Real discount rate | |-----------------------|---------------|-------------------------------|---------------|-------------------| | Cash outflows expected within two years | 0.76% | 2.0% | (1.22%) | (2.42%) | | Cash outflows expected between two and five years | 0.76% | 2.1% | (1.31%) | (2.42%) | | Cash outflows expected between five and ten years | 1.14% | 2.1% | (0.94%) | (1.85%) | | Cash outflows expected after ten years | 1.99% | 2.1% | (0.11%) | (1.56%) |

Allowances for future inflation and discounting can impact on reported liabilities significantly; uninflated, undiscounted equivalent values are provided in the descriptions of the provisions below to illustrate the effect.

### 19.1 Nuclear provisions

| | British Energy Decommissioning | UK Atomic Energy Authority Decommissioning | Core Department and Agencies Total | NDA Decommissioning | Contract loss | Departmental Group Total | |--------------------------------|--------------------------------|-------------------------------------------|-----------------------------------|---------------------|--------------|--------------------------| | **Balance at 1 April 2017** | £m | £m | £m | £m | £m | £m | | Net amount deducted from recoverable contract costs | - | - | - | - | - | 27 | | Unwinding of discount | (14) | (1) | (15) | (1,286) | (15) | (1,316) | | Change in discount rate | (18) | 1 | (17) | 71,002 | - | 70,985 | | Provided in the year | 37 | 8 | 45 | 3,462 | 40 | 3,547 | | Recoverable contract cost release in year | - | - | - | (291) | - | (291) | | Provisions utilised in the year| (193) | - | (193) | (2,740) | (166) | (3,099) | | **Balance at 31 March 2018** | £m | £m | £m | £m | £m | £m | | Net amount deducted from recoverable contract costs | - | - | - | - | - | 209 | | Unwinding of discount | (17) | (5) | (22) | (3,615) | (15) | (3,652) | | Change in discount rate | (4) | (33) | (37) | (95,969) | 22 | (95,984) | | Provided in the year | 25 | 146 | 171 | (1,114) | (427) | (1,370) | | Recoverable contract cost release in year | - | - | - | (276) | - | (276) | | Provisions utilised in the year| (178) | - | (178) | (2,599) | (157) | (2,934) | | **Balance at 31 March 2019** | £m | £m | £m | £m | £m | £m | | Estimated forward discounted cash flows as at 31 March 2019 | | | | | | | | Not later than one year | 160 | 2 | 162 | 2,735 | - | 2,897 | | Later than one year and not later than five years | 455 | 126 | 581 | 11,149 | 7 | 11,737 | | Later than five years | 309 | 294 | 603 | 115,825 | 32 | 116,460 | | **Total forward cash flows as at 31 March 2019** | 924 | 422 | 1,346 | 129,709 | 39 | 131,094 | Core Department

British Energy

As a result of the restructuring of British Energy (BE) in January 2005, the Government assists BE (now EDF Energy Nuclear Generation Limited) in meeting its contractual historic fuel liabilities. The provision is based on the forecast payment schedule up to 2029 which is set out in the waste processing contracts agreed between BE, BNFL and the department. The discounted liability at 31 March 2019 is £924 million (31 March 2018: £1,098 million). Payments are adjusted in line with the Retail Prices Index and the liability includes allowance for future inflation using a forecast for the Index from the Office for Budget Responsibility. The undiscounted liability at 31 March 2019, at prices as at the reporting date so excluding the impact of future inflation, is £956 million (31 March 2018: £1,022 million).

UK Atomic Energy Authority (UKAEA) Decommissioning

The decommissioning provision represents the estimated costs of decommissioning fusion research facilities at UKAEA’s Culham site, including the storage, processing and eventual disposal of radioactive wastes. The core Department retains the liability for these costs. Given that much of the work will not be undertaken until well into the future, the provision involves an element of estimation. In addition, the timing of expenditure is dependent on the closure date of the Joint European Torus facility. The discounted liability at 31 March 2019 is £422 million (31 March 2018: £314 million) and reflects a review during 2018-19 of the detailed Life Time Plan for decommissioning, drawn up in 2007-08. The undiscounted liability at 31 March 2019, at prices as at the reporting date so excluding the impact of future inflation, is £402 million (31 March 2018: £273 million). The increase is mainly due to changed requirements for waste preparation and packaging and additional project management and other staffing costs.

NDPBs and other designated bodies

NDA Decommissioning

The NDA’s nuclear decommissioning liability represents NDA’s best estimate of the costs of decommissioning plant and equipment on each of the designated nuclear licensed sites in accordance with the published strategy.

The programme of decommissioning work will take until 2137 but, in preparing the estimate, the NDA has focused in particular on the first 20 years which represent £50 billion out of the total £130 billion provision (31 March 2018: £56 billion out of £233 billion). The estimates are necessarily based on assumptions about the processes and methods likely to be used to discharge the obligations and reflect the latest technical knowledge, existing regulatory requirements, Government policy and commercial agreements. Given the very long timescale and the complexity of the plants and material being handled, considerable uncertainty remains in the cost estimate, particularly in the later years. Discounting of the forward cash flow estimates to present value also has a significant impact on the liability reported in the Statement of Financial Position of £130 billion at 31 March 2019 (31 March 2018: £233 billion). The undiscounted equivalent of this reported liability is £123 billion at 31 March 2019 (31 March 2018: £120 billion). The Group auditors continue to include an emphasis of matter paragraph in their audit certificate concerning the overall measurement uncertainty.

The NDA has commercial agreements in place under which a portion of the expenditure required to settle certain elements of the decommissioning provision are recoverable from third parties. Changes in future cost estimates of discharging these particular elements are therefore matched by a change in recoverable contract costs. In accordance with IAS 37, these recoverable amounts are not offset against the decommissioning provision but are treated as a separate asset (note 12). Sensitivity Analysis: An increase of 0.5% in the discount rate would reduce the provision to £110 billion, whilst a decrease in discount rate of 0.5% would increase the provision to £158 billion.

The change in discount rates (see note 1.23) in the current financial year produced a decrease of £107,764 million (2018: £65,964 million increase). This figure excludes the change relating to inflation plus the recoverable contract costs off-setting balance which otherwise result in a decrease of £95,969 million.

Analysis of expected timing of discounted cash flows for the NDA Nuclear Provision is as follows:

| | Waste | Research | Sellafield | Fuel Manufacturing & Generation | Others | 2018-19 Total | 2017-18 Total | |----------------|-------|----------|-----------|---------------------------------|--------|---------------|---------------| | Up to 1 year | 77 | 257 | 1,911 | 420 | 70 | 2,735 | 2,855 | | 2 to 5 years | 328 | 1,051 | 8,127 | 1,311 | 332 | 11,149 | 11,557 | | 6 to 20 years | 2,354 | 1,883 | 30,408 | 1,165 | 595 | 36,405 | 41,442 | | 21 to 50 years | 3,907 | 208 | 33,343 | 806 | 488 | 38,752 | 62,942 | | 50 years + | 4,788 | 61 | 24,743 | 11,893 | 132 | 41,617 | 115,274 | | | 11,454| 3,460 | 98,532 | 15,595 | 1,617 | 130,658 | 234,070 |

Deduction in respect of Site Licence Companies pension receivable from NDA (949) (788)

Total NDA Decommissioning Provisions 129,709 233,282

| Sensitivity | Waste | Research | Sellafield | Fuel M&G | Others | 2018-19 Total | 2017-18 Total | |-------------|-------|----------|-----------|----------|--------|---------------|---------------| | Increase | 28,244| 180 | 83,098 | 5,707 | 112 | 117,341 | 253,947 | | Reduction | (4,191)| (360) | (13,850) | (5,707) | (225) | (24,333) | (55,888) |

The NDA calculates its provision based on management’s best estimate of the future costs of the decommissioning programme, which is expected to take until 2137 to complete. The NDA also considers credible risks and opportunities which may increase or decrease the cost estimate, but which are deemed less probable than the best estimate. These are the basis of the sensitivities identified above, and the key sensitivities are as follows:

- Waste activities cover the Low Level Waste Repository and the Geological Disposal Facility (GDF), with the key sensitivities being in the timing and costs of constructing and operating the GDF. The above range from a reduction of £4,191 million to an increase of £28,244 million and reflect three separate sensitivities:

  - The potentially higher costs of constructing and operating the GDF itself, which dependent on the location and construction requirements of the facility, could be up to £25,144 million higher (or £4,191 million lower) than the base case assumption
  - The impact of the timing of the facility’s construction and operations. The current planned date for the facility to receive waste is 2045. NDA has identified a risk that the construction and opening of the facility may be delayed beyond 2045 (Further information on this can be found in the Governance Statement of the NDA’s Annual Report and Accounts). A delay to this date may increase the cost of the facility itself, along with the cost of interim storage of waste at sites across the NDA estate. A delay of a small number of years is considered to be within the overall tolerance of the estimate for GDF construction and waste transfer, and is not considered to have a material impact on the provision estimate. A longer delay of say 20 years could materially impact the provision, by approximately £2,100 million.

- A delay of 20 years would not necessarily increase the underlying costs of the facility, but would increase the discounted value of the estimate by approximately £1 billion due to the effect of long term negative discount rates.

- Activities on the sites primarily used for research (Dounreay, Harwell, and Winfrith) are concerned with final decommissioning of assets and site clearance. Sites will be cleared by 2080. Options are being explored to accelerate site clearance, which in the case of Dounreay would reduce the provision by £360 million; an increase in the cost and/or a delay of past the latest anticipated Interim State date (2033) would increase the provision by up to £180 million.

- Sellafield represents activities associated with operation of the site, reprocessing and eventual decommissioning, and includes all site overheads. Principal sensitivities are around the cost of delivering the plan, particularly the costs of new construction, decommissioning and post operational clean out (POCO) work in the long-term (beyond the next twenty years). The potential costs range from a £13,850 million reduction against the current estimate, to a £83,098 million increase.

- Fuel manufacturing and generation (which for this purpose includes Magnox and Springfields) programme of work includes defueling the generating stations and preparing for interim Care and Maintenance (complete by 2030) followed by a final site clearance phase around 2070 to 2107. The main cost risk is in the final site clearance phase, which may increase costs by £5,707 million. Conversely a reduction in the costs associated with this phase may reduce costs by £5,707 million.

Further details are reported in the Financial review on page 42 of the Annual Report and in the NDA Annual Report and Accounts.

**Contract loss**

Contract loss provisions have been recognised by the Nuclear Decommissioning Authority to cover anticipated shortfalls between total income and total expenditure on relevant long term contracts. The amounts are disclosed net after deduction of amounts relating to recoverable contract costs (note 12). The amount provided in the year for contract losses relates to changes in estimates of the costs of existing contracts. The discounted liability at 31 March 2019 is £39 million (31 March 2018: £407 million). Further detail, including movement on the gross provision, can be found in the accounts of the NDA.

## 19.2 Other provisions

| Concessionary fuel | British Shipbuilders | Legacy ailments | Onerous leases | Other | Core and Agencies total | Coal Authority | Early departure costs and restructuring | Other | Departmental Group total | |-------------------|----------------------|----------------|---------------|-------|------------------------|---------------|----------------------------------------|-------|------------------------| | £m | £m | £m | £m | £m | £m | £m | £m | £m | £m | | **Balance at 1 April 2017** | 433 | 198 | 131 | 113 | 119 | 994 | 2,818 | 121 | 332 | 4,265 | | Change in discount rate | 28 | 12 | 3 | (1) | 5 | 47 | 1,485 | - | 62 | 1,594 | | Provided in the year | 49 | 3 | - | 31 | 24 | 107 | 80 | 1 | 3 | 191 | | Provisions not required written back | - | - | (2) | - | (3) | (5) | (2) | (16) | 15 | (8) | | Provisions utilised in the year | (42) | (11) | (7) | (15) | (16) | (91) | (26) | (20) | (2) | (139) | | Unwinding of discount | (5) | (1) | (1) | (2) | (1) | (10) | (27) | (1) | (31) | (69) | | **Balance at 31 March 2018** | 463 | 201 | 124 | 126 | 128 | 1,042 | 4,328 | 85 | 379 | 5,834 | | IFRS 9 - transfer to loan commitment liability note | - | - | - | - | - | - | - | - | (184) | (184) | | **Revised balance at 1 April 2018** | 463 | 201 | 124 | 126 | 128 | 1,042 | 4,328 | 85 | 195 | 5,650 | | Change in discount rate | (42) | (56) | (11) | (7) | (11) | (127) | (2,634) | - | (38) | (2,799) | | Provided in the year | - | - | 8 | 23 | 24 | 55 | 776 | 12 | 10 | 853 | | Provisions not required written back | (11) | (1) | - | - | (3) | (15) | (74) | (1) | (2) | (92) | | Provisions utilised in the year | (40) | (7) | (18) | (27) | (14) | (106) | (28) | (16) | (4) | (154) | | Unwinding of discount | (7) | (3) | (2) | (2) | (1) | (15) | (69) | (1) | (1) | (86) | | **Balance at 31 March 2019** | 363 | 134 | 101 | 113 | 123 | 834 | 2,299 | 79 | 160 | 3,372 |

### Estimated forward discounted cash flows as at 31 March 2019

| Not later than one year | 37 | 8 | 13 | 23 | 17 | 98 | 27 | 17 | 11 | 153 | | Later than one year and not later than five years | 122 | 33 | 35 | 74 | 38 | 302 | 141 | 37 | 18 | 498 | | Later than five years | 204 | 93 | 53 | 16 | 68 | 434 | 2,131 | 25 | 131 | 2,721 |

### Total forward cash flows as at 31 March 2019

| 363 | 134 | 101 | 113 | 123 | 834 | 2,299 | 79 | 160 | 3,372 | Core Department

Concessionary fuel

The provision covers the cost of the core Department’s responsibility, arising from government announced guarantees, to provide either solid fuel or a cash alternative to ex-miners formerly employed by British Coal and their dependants and to certain former employees who lost their entitlement as a consequence of the restructuring and run down of UK Coal in 2013 and 2015; it includes administration costs. Of the total of 43,801 current beneficiaries at 31 March 2019, 37,505 have opted for the cash alternative at an average cost per beneficiary of £732 per annum; the average annual cost of solid fuel for the remainder is £1,147 per beneficiary excluding delivery costs and VAT. The provision is based on standard female mortality rates and assumes beneficiaries will continue to switch their entitlement from solid fuel to cash in line with rates observed in the recent past. Costs are expected to be incurred up to 2062. The discounted liability at 31 March 2019 is £363 million (31 March 2018: £463 million); the undiscounted liability at 31 March 2019, at prices as at the reporting date so excluding the impact of future inflation, is £352 million (31 March 2018: £397 million).

British Shipbuilders

The provision covers the cost of personal injury compensation claims by former employees of British Shipbuilders and its subsidiaries arising primarily from exposure to asbestos during the course of their work. The core Department has taken on full responsibility for the liabilities of the former Corporation which was abolished in March 2013. It is subject to considerable uncertainty. The discounted liability at 31 March 2019 is £134 million (31 March 2018: £201 million); the undiscounted liability of £159 million (31 March 2018: £168 million) is based on an actuarial review as at 31 March 2016 and includes allowance for future inflation judged appropriate by the actuary. The review had identified the range for the potential inflated, undiscounted liability at 31 March 2016 as between £118 million and £389 million with liabilities extending up to 2048.

British Coal Corporation Health Liabilities (Legacy ailments)

The provision covers the cost of compensation claims relating to personal injuries suffered by former British Coal mineworkers, responsibility for which falls to the core Department by a restructuring scheme under the Coal Industry Act 1994. The discounted liability at 31 March 2019 is £101 million (31 March 2018: £124 million); the undiscounted liability of £98 million, at prices as at the reporting date so excluding the impact of future inflation (31 March 2018: £109 million), is based on forecasts of settlement of claims, taking account of discussion with the core Department’s legal advisors and claim handlers and recent actuarial estimates. It is subject to considerable uncertainty and includes undiscounted estimates at prices as at the reporting date of £11 million (31 March 2018: £22 million) for induced hearing loss, £68 million (31 March 2018: £68 million) for miscellaneous disease claims including phurnacite, mesothelioma, pneumoconiosis, pleural thickening, asbestos related conditions, vibration white finger, chronic obstructive pulmonary disease, cancer, pleural plaques and other minor benefits schemes and £19 million (31 March 2018: £19 million) for litigation by former British Coal Coke Oven Workers. The current estimate is that liabilities will extend up to 2050.

Onerous leases

The core Department has onerous leases in respect of office accommodation at 151 Buckingham Palace Road, 10-18 Victoria Street and other locations. The leases are held by the Government Property Agency but the obligation to finance their running costs remains with the core Department. The department has attempted to mitigate potential losses by subleasing but, given current market conditions and future forecasts, has determined that, at the reporting date, neither the current nor future potential subleases will recover the full costs incurred. The discounted liability at 31 March 2019 is £113 million (31 March 2018: £126 million); the undiscounted liability at 31 March 2019, including the impact of future inflation is £115 million (31 March 2018: £119 million). The liabilities extend to 2026. **NDPBs and other designated bodies**

**Coal Authority**

The Coal Authority provision relates predominantly to the Authority’s responsibilities for mine water treatment, public safety and subsidence pumping stations. Significant uncertainties are associated with estimation of likely costs in respect of these liabilities. The discounted liability at 31 March 2019 is £2,299 million (31 March 2018: £4,328 million). The undiscounted liability at 31 March 2019 is £2,174 million (31 March 2018: £1,902 million). Further details are reported in the Coal Authority Annual Report and Accounts.

Included in other provisions in note 19.2 for the core Department is the Coal Health provision (legacy ailments), which is subject to significant uncertainty.

**Early departure costs and restructuring**

£67 million (31 March 2018: £72 million) of the restructuring provision relates to site licence companies and includes continuing annual payments under early retirement arrangements to individuals who retired early, or had accepted early retirement, before 31 March 2019 and will continue at least until the date at which the individual would have reached normal retirement age. The undiscounted equivalent is 31 March 2019 is £68 million (31 March 2018: £76 million).

**Enterprise Capital Fund**

Following the introduction of IFRS 9 ‘Financial Instruments’, the British Business Bank’s Enterprise Capital Fund commitments to provide loans under the market rate were designated to be measured at Fair Value through Profit or Loss. As a result, the Departmental Group has transferred out the loan commitment liabilities of £184 million as at 31 March 2018 from “Other provisions” to disclose separately together with financial guarantee liabilities. Further details can be found in note 20 ‘Financial Guarantee and Loan Commitment Liabilities’.

### 20 Financial Guarantee and Loan Commitment Liabilities

| | Core Department and Agencies | 31 March 2019 | Departmental Group | 31 March 2018 | Core Department and Agencies | 31 March 2019 | Departmental Group | 31 March 2018 | |----------------------|------------------------------|---------------|--------------------|---------------|------------------------------|---------------|--------------------|---------------| | Balance at 1 April | 61 | 61 | 61 | 61 | | | | | | IFRS 9 Adjustments to Opening Balances | (16) | 168 | - | - | | Revised balance at 1 April | 45 | 229 | 61 | 61 | | Additions | 20 | 58 | 17 | 17 | | | | | | Net remeasurement | - | (46) | (5) | (5) | | | | | | Called | (11) | (11) | (11) | (11) | | | | | | Amortisation | - | - | (1) | (1) | | | | | | Balance at 31 March | 54 | 230 | 61 | 61 | | | | |

Comprising:

- Financial guarantee liabilities: 54 54 61 61
- Loan commitment liabilities: - 176 - -

**Balance at 31 March**

| | Core Department and Agencies | 31 March 2019 | Departmental Group | 31 March 2018 | |----------------------|------------------------------|---------------|--------------------|---------------| | Of which: | | | | | | Current liability | 11 | 11 | 16 | 16 | | Non-current liability| 43 | 219 | 45 | 45 | | Balance at 31 March | 54 | 230 | 61 | 61 | Following the introduction of IFRS 9 ‘Financial Instruments’, the British Business Bank’s Enterprise Capital Fund commitments to provide loans under the market rate were designated to be measured at Fair Value through Profit or Loss. As a result, the Departmental Group has transferred out the loan commitment liabilities of £184 million as at 31 March 2018 from “Other provisions” to disclose separately together with financial guarantee liabilities.

21 Retirement benefit obligations

The Departmental Group consolidates 9 defined benefit pension arrangements from its designated bodies including:

- UK Research and Innovation
- Nuclear Decommissioning Authority
- Nuclear site licence companies

All schemes are accounted for in accordance with IAS 19 ‘Employee Benefits’. They are subject to the UK regulatory framework and under the scope of the scheme specific funding requirement. The schemes’ trustees are responsible for operating these defined benefit plans and have a statutory responsibility for ensuring the schemes are sufficiently funded to meet current and future benefit payments.

Defined benefit scheme liabilities expose the Departmental group to material financial uncertainty, arising from factors such as changes in life expectancy and in the amount of pensions payable. Some scheme investments, such as equities, should offer long-term growth in excess of inflation, but can be more volatile in the shorter term than government bonds.

The details of each scheme are discussed below.

UK Research and Innovation (UKRI)

The UKRI operates the legacy Medical Research Council (MRC) defined benefit, final salary pension scheme. A full actuarial evaluation was undertaken as at 31 December 2016 which was rolled forward by the actuary to determine the approximate position as at 31 March 2019.

Further details regarding the nature of the benefits provided, regulatory framework, actuarial assumptions, sensitivity analysis, key risks and risk management policy including asset-liability matching strategies, and any funding arrangements or funding policy that may affect future contributions can be found in the accounts of UKRI.

Nuclear Decommissioning Authority (NDA)

Two defined benefit pension schemes relate to the NDA – the Closed and Nirex sections of the Combined Nuclear Pension Plan (CNPP). Both are closed to new entrants. Full actuarial evaluations were undertaken as at 31 March 2016. The actuaries rolled forward the results to determine approximate positions as at 31 March 2019. Further details regarding the nature of the benefits provided, regulatory framework, actuarial assumptions, sensitivity analysis, key risks and risk management policy including asset-liability matching strategies, and any funding arrangements or funding policy that may affect future contributions can be found in the accounts of NDA.

Nuclear site licence companies (SLCs)

There are 6 defined benefit final salary pension schemes relating to the 4 SLCs comprising: a) the LLWR section of the CNPP (for LLW Repository Limited), b) the SLC section of the Magnox Electric Group of the ESPS and the Magnox Section of the CNPP (for Magnox Limited), c) the Group Pension Scheme SLC section of the CNPP and the Sellafield section of the CNPP (for Sellafield Limited) and d) the Dounreay Section of the CNPP (for Dounreay Site Restoration Limited). All are closed to new entrants. The most recent triennial actuarial valuations were undertaken as at 31 March 2016 for all six SLCs schemes. The actuaries rolled forward the results to determine approximate positions as at 31 March 2019. Further details regarding the nature of the benefits provided, regulatory framework, key risks and risk management policy including asset-liability matching strategies, and any funding arrangements or funding policy that may affect future contributions can be found in the CNPP Statement of Investment Principles at [https://www.cnpp.org.uk/document-library/](https://www.cnpp.org.uk/document-library/), and in the Electricity Supply Pension Scheme’s Annual Reports at [https://megtpensions.com/finance-report](https://megtpensions.com/finance-report).

| 31 March 2019 Funded pension schemes £m | 31 March 2018 Funded pension schemes £m | |-----------------------------------------|-----------------------------------------| | Present value of defined benefit obligation at 1 April | 7,632 | 7,568 | | Interest cost | 197 | 190 | | Current service cost | 248 | 267 | | Past service cost | 15 | 6 | | Benefits paid | (231) | (215) | | Actuarial (gains)/losses in financial assumption | 422 | (127) | | Actuarial (gains)/losses on defined benefit obligation due to demographic assumptions | (68) | (103) | | Actuarial (gains)/losses arising from experience adjustments | 13 | 20 | | Employee contributions | 25 | 26 | | Transfer in | (13) | - | | Present value of defined benefit obligation at 31 March | 8,240 | 7,632 |

| 31 March 2019 Funded pension schemes £m | 31 March 2018 Funded pension schemes £m | |-----------------------------------------|-----------------------------------------| | Fair value of assets at 1 April | 6,946 | 6,691 | | Expected return on plan assets | 179 | 170 | | Employer contributions | 149 | 143 | | Benefits paid | (231) | (215) | | Actuarial gains/(losses) | 264 | 131 | | Employee contributions | 25 | 26 | | Transfer in | (13) | - | | Fair value of assets at 31 March | 7,319 | 6,946 |

| 31 March 2019 Funded pension schemes £m | 31 March 2018 Funded pension schemes £m | |-----------------------------------------|-----------------------------------------| | Net liability at 31 March | 921 | 686 |

The increase in the net liability at 31 March 2019 compared to 31 March 2018 is primarily due to a decrease in the discount rate applied to the defined benefit obligation for Magnox Limited from 2.6% at 31 March 2018 to 2.4% at 31 March 2019 and for Sellafield Limited from 2.6% at 31 March 2018 to 2.5% at 31 March 2019.

### Net (asset)/liability by scheme

| Scheme Description | Present value of defined benefit obligation | Fair value of assets | Net liability/(asset) | Present value of defined benefit obligation | Fair value of assets | Net liability/(asset) | |--------------------|---------------------------------------------|----------------------|----------------------|---------------------------------------------|----------------------|----------------------| | UK Research and Innovation - Medical Research Council | 1,605 | 1,649 | (44) | 1,460 | 1,582 | (122) | | LLW Repository Ltd - LLWR section of CNPP | 33 | 22 | 11 | 27 | 20 | 7 | | Magnox Ltd - SLC section of Magnox Electric Group of ESPS | 3,298 | 3,214 | 84 | 3,185 | 3,140 | 45 | | Magnox Ltd - Magnox section of CNPP | 161 | 120 | 41 | 141 | 109 | 32 | | Sellafield Ltd - Group Pension Scheme SLC section of CNPP | 707 | 682 | 25 | 682 | 649 | 33 | | Sellafield Ltd - Sellafield section of CNPP | 2,119 | 1,386 | 733 | 1,852 | 1,217 | 635 | | Dounreay Site Restoration Ltd - Dounreay section of CNPP | 159 | 106 | 53 | 130 | 94 | 36 | | Nuclear Decommissioning Authority | 158 | 140 | 18 | 155 | 135 | 20 | | **Total net liability at 31 March** | **8,240** | **7,319** | **921** | **7,632** | **6,946** | **686** |

### Asset allocation

| Asset Category | 31 March 2019 | 31 March 2018 | |----------------|---------------|---------------| | Equities | 2,211 | 2,471 | | Property | 765 | 698 | | Government bonds | 1,933 | 1,678 | | Corporate bonds | 541 | 626 | | Other growth assets | 1,734 | 1,362 | | Other | 135 | 111 | | **Balance at reporting date** | **7,319** | **6,946** |

The Magnox schemes had a total asset balance of £3,331 million, of which £119 million of property assets and £1,185 million of other growth assets were not quoted in an active market. The Sellafield schemes had £2,067 million of total assets, the majority of which excluding the amount held in the Trustees’ bank account and some private equity investments due to their illiquid nature had a quoted market value in an active market. The UKRI - MRC scheme’s total assets of £1,649 million included £451 million of quoted equities and £129 million of quoted bonds. Expected contribution over the next accounting period

It is possible that the actual amount paid might be different to the estimated amount. This may be due to contributions, benefits payments or pensionable payroll differing from expected, changes to schemes’ benefits or settlement/curtailment events that are currently unknown.

| Scheme Description | 31 March 2019 £m | 31 March 2018 £m | |--------------------|------------------|------------------| | UK Research and Innovation - Medical Research Council | 25 | 27 | | LLW Repository Ltd – LLWR section of CNPP | 1 | 1 | | Magnox Ltd – SLC section of Magnox Electric Group of ESPS | 27 | 39 | | Magnox Ltd – Magnox section of CNPP | 5 | 10 | | Sellafield Ltd – Group Pension Scheme SLC section of CNPP | 7 | 6 | | Sellafield Ltd – Sellafield section of CNPP | 78 | 74 | | Dounreay Site Restoration Ltd – DSRL section of CNPP | 6 | 7 | | Nuclear Decommissioning Authority | 1 | 1 | | **Total** | **150** | **165** |

Weighted average duration of the defined benefit obligation plans

| Scheme Description | 31 March 2019 £m | 31 March 2018 £m | |--------------------|------------------|------------------| | UK Research and Innovation – Medical Research Council | 21 | 21 | | LLW Repository Ltd – LLWR section of CNPP | 20 | 20 | | Magnox Ltd – SLC section of Magnox Electric Group of ESPS | 16 | 16 | | Magnox Ltd – Magnox section of CNPP | 22 | 22 | | Sellafield Ltd – Group Pension Scheme SLC section of CNPP | 20 | 20 | | Sellafield Ltd – Sellafield section of CNPP | 20 | 20 | | Dounreay Site Restoration Ltd – DSRL section of CNPP | 20 | 30 | | Nuclear Decommissioning Authority | 23 | 23 |

Major actuarial assumptions for SLC schemes

| Scheme Description | Dounreay Site Restoration Limited 2018-19 | Dounreay Site Restoration Limited 2017-18 | LLW Repository Limited 2018-19 | LLW Repository Limited 2017-18 | Magnox Limited 2018-19 | Magnox Limited 2017-18 | Sellafield Limited 2018-19 | Sellafield Limited 2017-18 | |--------------------|------------------------------------------|------------------------------------------|-------------------------------|-------------------------------|------------------------|------------------------|------------------------|------------------------| | Discount rate | 2.5% | 2.6% | 2.4% | 2.6% | 2.4% | 2.6% | 2.5% | 2.6% | | Inflation (Retail Prices Index) | 3.5% | 3.1% | 3.2% | 3.1% | 3.5% | 3.4% | 3.5% | 3.5% | | Life expectancy in years at 65, currently aged 65 (male) | 21.8 | 21.8 | 21.9 | 21.8 | 21.8 | 21.9 | 21.8 | 21.9 | | Life expectancy in years at 65, currently aged 45 (male) | 22.9 | 22.9 | 23.1 | 22.9 | 22.9 | 23.1 | 22.9 | 23.1 | | Life expectancy in years at 65, currently aged 65 (female) | 23.7 | 23.7 | 23.8 | 23.7 | 23.7 | 23.8 | 23.7 | 23.8 | | Life expectancy in years at 65, currently aged 45 (female) | 25.0 | 25.0 | 25.0 | 25.0 | 25.0 | 25.0 | 25.0 | 25.0 | | Life expectancy in years at 60, currently aged 60 (male) | 26.6 | 28.0 | 28.3 | 28.0 | 28.3 | 28.3 | 28.3 | 28.3 | Financial Statements

Dounreay Site Restoration Limited LLW Repository Limited Magnox Limited Sellafield Limited

| | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | 2018-19 | 2017-18 | |--------------------------|---------|---------|---------|---------|---------|---------|---------|---------| | Life expectancy in years at 60, currently aged 40 (male) | 28.1 | | 29.0 | 29.4 | | | | | | Life expectancy in years at 60, currently aged 60 (female) | 28.6 | | 30.0 | 30.3 | | | | | | Life expectancy in years at 60, currently aged 40 (female) | | | 30.2 | 31.1 | 31.4 | | | |

Major actuarial assumptions for NDA and UKRI

| | Nuclear Decommissioning Authority | UK Research and Innovation | |--------------------------|-----------------------------------|---------------------------| | | 2018-19 | 2017-18 | 2018-19 | 2017-18 | | Discount rate | 2.5% | 2.6% | 2.4% | 2.6% | | Inflation (Retail Prices Index) | 3.5% | 3.5% | 3.6% | 3.4% | | Life expectancy in years at 65, currently aged 65 (male) | 21.8 | 21.9 | 23.0 | 23.0 | | Life expectancy in years at 65, currently aged 45 (male) | 22.9 | 23.1 | 24.9 | 24.9 | | Life expectancy in years at 65, currently aged 65 (female) | 23.7 | 23.8 | 24.6 | 24.6 | | Life expectancy in years at 65, currently aged 45 (female) | 25.0 | 25.0 | 26.5 | 26.5 |

Sensitivity analysis

| | Dounreay Site Restoration Limited | LLW Repository Limited | Magnox Limited | Sellafield Limited | Nuclear Decommissioning Authority | UK Research and Innovation | |--------------------------|-----------------------------------|------------------------|----------------|-------------------|-----------------------------------|---------------------------| | | £m | £m | £m | £m | £m | £m | | 0.1 percentage point decrease in annual discount rate | - | - | 63 | - | - | - | | 0.1 percentage point increase in inflation assumption | - | - | 61 | - | - | - | | 0.5 percentage point decrease in annual discount rate | 17 | 4 | - | 347 | 16 | 176 | | 0.5 percentage point increase in inflation assumption | 17 | 4 | - | 347 | 16 | 128 | | 1 year increase in life expectancy | 6 | 1 | 148 | 102 | 6 | 48 |

The table shows the increase in liability that would result from changes in these actuarial assumptions. 22 Capital and other commitments

Total minimum payments in respect of capital, lease and other commitments

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | 31 March 2018 restated | | | £m | £m | £m | £m | | Contracted capital commitments | 22.1 | 22 | 1,929 | 5 | 1,912 | | Minimum future payments under: | | | | | | Operating leases | 22.2 | 326 | 462 | 213 | 333 | | Finance leases | - | 28 | - | 30 | | PFI contracts and service concession arrangements | - | - | 2 | 2 | | Other financial commitments | 22.3 | 3,012 | 3,427 | 2,928 | 3,370 | | Total | | 3,360 | 5,846 | 3,148 | 5,647 |

22.1 Capital commitments

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | £m | £m | £m | £m | | Contracted capital commitments not otherwise included in these financial statements: | | | | | | Property, plant and equipment | 17 | 271 | 3 | 315 | | Intangible assets | 5 | 20 | 2 | 28 | | Loans, Investments | - | 1,638 | - | 1,569 | | Total | 22 | 1,929 | 5 | 1,912 |

Core Department

The core Department has not entered into any significant capital commitments.

NDPBs and other designated bodies

Capital commitments as at 31 March 2019 include the following significant items:

- Property, plant and equipment commitments for United Kingdom Research and Innovation (UKRI) of £231 million (31 March 2018: £181 million) at the UKRI Institute sites due in one to three years.

- Investment commitments of £1,203 million (31 March 2018: £1,139 million) for the British Business Bank plc (BBB) relating to undrawn investment commitments, £176 million (31 March 2018: £234 million) for Northern Powerhouse Investment Limited relating to capital calls to be utilised over the next eight years, £176 million (31 March 2018: £118 million) for Midlands Engine Investments Limited relating to capital calls to be utilised over the next nine years and £83 million (31 March 2018: £79 million) for the BIS (Postal Services Act 2011) Company Limited, which has capital calls relating to investments in respect of its private equity and property funds financial instruments. 22.2 Commitments under leases

22.2.1 Operating leases: Department as a lessee

Total future minimum lease payments under operating leases are given in the table below for each of the following periods:

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Obligations under operating leases comprise: | £m | £m | £m | £m | | Land: | | | | | | Not later than one year | - | 1 | - | 1 | | Later than one year and not later than five years | - | 2 | - | 2 | | Later than five years | - | 20 | - | 20 | | | - | 23 | - | 23 | | Buildings: | | | | | | Not later than one year | 57 | 73 | 59 | 75 | | Later than one year and not later than five years | 139 | 176 | 124 | 157 | | Later than five years | 122 | 172 | 22 | 67 | | | 318 | 421 | 205 | 299 | | Other: | | | | | | Not later than one year | 5 | 9 | 5 | 7 | | Later than one year and not later than five years | 3 | 9 | 3 | 4 | | | 8 | 18 | 8 | 11 | | Total | 326 | 462 | 213 | 333 |

The commitment for Buildings for the core Department has increased to £295 million at 31 March 2019 (31 March 2018: £188 million) due to extension of the lease on the property at 1 Victoria Street, London; this commitment is £187 million at 31 March 2019 (31 March 2018: £45 million). Further information about finance leases and sub-lease arrangements of the Agencies, NDPBs and other designated bodies can be found in the accounts of the relevant bodies.

22.2.2 Operating leases: Department as a lessor

Total future minimum lease receivables under operating leases are given in the table below:

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 | | | | Receivables under operating leases for the following periods comprise: | £m | £m | £m | £m | | Not later than one year | - | 10 | - | 9 | | Later than one year and not later than five years | 1 | 25 | 1 | 22 | | Later than five years | 3 | 40 | 3 | 42 | | Total | 4 | 75 | 4 | 73 | 22.3 Other financial commitments

The Departmental Group has entered into non-cancellable contracts (which are not leases, PFI contracts or other service concession arrangements) for subscriptions to international bodies and various other expenditures. Future payments to which the Departmental Group is committed are as follows:

| | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |----------------------|------------------------------|--------------------|------------------------------|--------------------| | | 31 March 2019 | 31 March 2018 restated | | Not later than one year | £m | £m | £m | £m | | | 484 | 698 | 553 | 764 | | Later than one year and not later than five years | 982 | 1,182 | 1,224 | 1,440 | | Later than five years | 1,546 | 1,547 | 1,151 | 1,166 | | Total | 3,012 | 3,427 | 2,928 | 3,370 |

22.3.1 International subscriptions

The financial commitments payable include subscriptions payable to international bodies, analysed by the period in which the payments are due:

| Organisation | Note | Within one Year | Later than 1 year and not later than 5 years | Later than 5 Years | Total 31 March 2019 | Total 31 March 2018 | |---------------------------------------------------|------|-----------------|---------------------------------------------|-------------------|---------------------|---------------------| | International Atomic Energy Agency | a | 17 | 68 | 85 | 170 | 139 | | European Space Agency | b | 267 | 415 | - | 682 | 926 | | Other subscriptions | | 8 | 30 | 35 | 73 | 62 | | Core Department and Agencies total | | 292 | 513 | 120 | 925 | 1,127 | | European Organisation for Nuclear Research (CERN) | c | 149 | 83 | - | 232 | 235 | | Institut Laue Langevin (ILL) | d | 19 | 78 | - | 97 | 113 | | Other subscriptions | | 44 | 39 | 1 | 84 | 91 | | Departmental Group total | | 504 | 713 | 121 | 1,338 | 1,566 |

Notes:

The Departmental Group is required to subscribe to a number of bodies on an on-going and continuous basis. These subscriptions are paid in Euros, Swiss Francs and pounds sterling. The subscriptions described below are paid in Euros or Swiss Francs and amounts paid are subject to fluctuations due to exchange rate differences.

a) The core Department is responsible for paying in the UK’s annual subscriptions to the International Atomic Energy Agency (IAEA). The IAEA is the UN-affiliated organisation responsible for ensuring the safe, secure and peaceful use of civil nuclear technologies, through monitoring nuclear safeguards, setting international standards and guidance for nuclear safety and security promoting nuclear applications for development.

b) The UK Space Agency pays international subscriptions to the European Space Agency (ESA) three times a year and these amounts are agreed several years in advance. The payments reported reflect existing commitments on forward exchange contracts placed with the Bank of England to cover periods until 1 October 2021. The annual subscriptions are to be set at a minimum of €300 million and will be aligned with the agreed ESA programmes activity. It is expected that these amounts will be paid by means of forward exchange contracts or amounts translated on the date of payment.

c) United Kingdom Research and Innovation (UKRI) shares the funding of the capital and running costs of CERN with other major scientific nations. There is a notice of withdrawal period of 12 months after the end of the current calendar year. The commitment is due to end in 2020. d) The UK, through UKRI, has signed up to International Conventions, with respect to Institut Laue-Langevin (ILL). The 5th protocol of the Intergovernmental Convention was signed in July 2013 and will remain in force until 31 December 2023. Thereafter it shall be tacitly extended from year to year unless any of the Governments gives written notification to the other Governments of its intention to withdraw from the Convention. Any such withdrawal will take effect upon the expiry of two years from the date of receipt of the notification by any of the other Governments or on such later date as may be specified in the notification.

22.3.2 Other commitments

The financial commitments payable in future years include payments due under non-cancellable contracts to the following organisations:

| Organisation | Note | Within one year £m | Later than one year and not later than five years £m | Later than five years £m | Total 31 March 2019 £m | Total 31 March 2018 restated £m | |-------------------------------------|------|--------------------|-----------------------------------------------------|--------------------------|------------------------|-------------------------------| | Met Office | a | 91 | 407 | 1,395 | 1,893 | 1,546 | | Other commitments | | 101 | 62 | 31 | 194 | 161 | | Core Department and Agencies total | | 192 | 469 | 1,426 | 2,087 | 1,707 | | Other commitments | | 2 | - | - | 2 | 3 | | Departmental Group total | | 194 | 469 | 1,426 | 2,089 | 1,710 |

Commitments for the core Department as at 31 March 2018 have been restated to remove contracts with Ordnance Survey which transferred to the Cabinet Office in 2018-19. The nature of the most significant contract is described below:

a) The core Department has agreements with the Met Office (a trading fund owned by the department) to provide meteorological services including the Public Weather Service agreement which the department manages on behalf of the government and for which the forward commitment is separately itemised above; this agreement is of indefinite duration but reviewed on an annual basis.

## 23 Financial instruments

The carrying amounts of financial instruments in each of the IFRS 9 categories are as follows:

| Note | Core Department and Agencies | Departmental Group | Core Department and Agencies | Departmental Group | |------|-----------------------------|--------------------|-----------------------------|--------------------| | | 31 March 2019 | £m | 31 March 2018 | £m | 31 March 2019 | £m | 31 March 2018 | £m | | **Financial assets** | | | | | | | | | | **Financial assets at amortised cost:** | | | | | | | | | | Cash and cash equivalents | 17 | 1,283 | 2,088 | 1,246 | 2,034 | | | | | Receivables | 14 | 1,146 | 2,023 | 1,374 | 2,001 | | | | | Loans to public sector bodies | 10.3, 16 | 1,285 | 893 | 1,238 | 943 | | | | | Other financial assets and private sector loans | 2 | 840 | 2 | 606 | | | | | | Held to maturity assets | 11.2 | - | - | - | 7 | | | | | **Total financial assets at amortised cost** | | 3,716 | 5,844 | 3,860 | 5,591 | | | | | **Available for sale financial assets:** | | | | | | | | | | Repayable launch investments | 11.1 | - | - | 1,047 | 1,047 | | | | | Ordinary shares in public sector companies | 10.1 | - | - | 880 | 1,337 | | | | | Other financial assets | 11.2 | - | - | 121 | 2,676 | | | | | **Total available for sale financial assets** | | - | - | 2,048 | 5,060 | | | | | **Financial assets elected at fair value through other comprehensive income (FVOCI):** | | | | | | | | | | Ordinary shares in public sector companies | 10.1 | 915 | 1,404 | - | - | | | | | Other financial assets | 11.2 | 46 | 60 | - | - | | | | | **Total financial assets elected at FVOCI** | | 961 | 1,464 | - | - | | | | | **Financial assets mandatory at fair value through profit or loss (FVTPL):** | | | | | | | | | | Repayable launch investments | 11.1 | 1,058 | 1,058 | - | - | | | | | Derivatives - Forward contracts | 24 | 24 | 78 | 86 | | | | | | Other financial assets | 11.2 | 90 | 2,140 | - | 1 | | | | | **Total financial assets mandatory at FVTPL** | | 1,172 | 3,222 | 78 | 87 | | | | | **Public dividend capital:** | | | | | | | | | | Public dividend capital | 10.2 | 81 | 81 | 81 | 81 | | | | | **Total public dividend capital** | | 81 | 81 | 81 | 81 | | | | | **Financial liabilities** | | | | | | | | | | **Financial liabilities as amortised cost:** | | | | | | | | | | Payables | 18 | (1,924) | (2,623) | (1,335) | (2,175) | | | | | **Total financial liabilities as amortised cost** | | (1,924) | (2,623) | (1,335) | (2,175) | | | | | **Financial liabilities mandatory at fair value through profit or loss (FVTPL):** | | | | | | | | | | Derivatives - Forward contracts | (3) | (15) | - | - | | | | | | Derivatives - Contracts for difference (CFD) | 9 | - | (12,921) | - | (15,892) | | | | Financial Statements

203

31 March 2019 31 March 2018

Note Core Department and Agencies £m Core Department and Agencies £m

Total financial liabilities mandatory at FVTPL (3) (12,936) - (15,892)

Financial liabilities designated at fair value through profit or loss (FVTPL):

Loan commitment liabilities 20 - (176) - -

Total financial liabilities designated at FVTPL - (176) - -

Financial guarantee liabilities:

Financial guarantee liabilities 20 (54) (54) (61) (61)

Total financial guarantee liabilities (54) (54) (61) (61)

i. The amounts disclosed above as payables and receivables exclude any assets or liabilities which do not arise from a contractual arrangement.

ii. Loans to public sector bodies comprises the loans detailed in Note 16 and Other loans and investments in Other public sector bodies detailed in 10.3.

iii. Loans to public sector bodies in the core Department for 2018-19 excludes £169 million (2017-18: £63 million) related to the loan investments in the UK Climate Investments LLP, Cornwall and Isles of Scilly Investments Limited, Northern Powerhouse Investment Fund and Midlands Engine Investment Fund, as these are accounted for at cost under IAS 27.

iv. Ordinary shares in public sector companies excludes bodies that are consolidated in the Departmental Group, as these are held at cost, see Note 10.1.

Financial risk management

IFRS 7 ‘Financial Instruments: Disclosure’ requires the disclosure of information which will allow users of financial statements to evaluate the significance of financial instruments on the Departmental Group’s financial performance and position and the nature and extent of its exposure to risks arising from these instruments.

As the cash requirements of the Departmental Group are largely met through the Estimates process, financial instruments play a more limited role in creating risk than would apply to a private sector body of a similar size.

The Departmental Group is however exposed to credit, market, interest rate, liquidity and commodity price risks due to the specific programmes and activities undertaken in pursuance of the Departmental Group’s objectives.

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation.

Significant credit risks can be summarised as follows:

Core Department

- Investment Funds – Investee companies may not perform as expected and the core Department may not recover its initial investment. The core Department minimises the risk by monitoring the overall performance of the Funds and to secure value for the department as an investor. This includes a full evaluation of each business case submitted prior to committing funds.

- Financial guarantees – the core Department is exposed to credit risk from potential default by recipients of loans guaranteed by the core Department. The risk is minimised for the most significant guarantee scheme, the Enterprise Financial Guarantee (EFG) scheme, by devolving responsibility to the lending institutions to determine that prospective borrowers are commercially viable. Lenders are required to apply normal commercial practice. The department undertakes an independent audit of lenders participating in the EFG scheme by sampling and checking guarantees granted and defaults arising using recognised statistical sampling and auditing techniques and by auditing individual default claims by exception. Losses are shared between the department and lending institution. The EFG is subject to a cap which limits the Department’s exposure. As at 31 March 2019 the core Department has £588 million of guarantees outstanding (31 March 2018: £630 million) which will expire over the next 10 years as the underlying debt matures. Due to the cap on payouts, the maximum amount that could be paid out if all loans defaulted is £260 million (31 March 2018: £239 million). However, not all loans are expected to default and the liability is estimated at £54 million (31 March 2018: £61 million). Future fees receivable for the guarantees are estimated at £24 million after allowing for bad debts (31 March 2018: £27 million). Both the liability for expected pay outs and asset for future fees are recognised on the Statement of Financial Position.

NDPBs and other designated bodies The British Business Bank (BBB) investments are assessed by BBB’s Valuation Committee. BBB produces credit risk ratings for its investments based upon a risk grading of the financial obligor and the estimated Loss Given Default on that investment. Risk drivers which are assessed in setting the ratings include the financial viability and lending safety of the investment and, if available, the rating assigned by an external credit agency. This is mitigated by new product approval processes that assess default and loss rates, due diligence of delivery partners underwriting methods, and portfolio monitoring and default models being put in place.

Credit risk rating and loss allowance The Departmental Group has the following financial assets subject to the expected credit loss model:

- Trade receivables, contract assets, and lease receivables
- Loans, bonds, and term deposits
- Cash and cash equivalents

Trade receivable, contract assets and lease receivables The core Department applies the IFRS 9 simplified approach using an allowance matrix to measure the lifetime expected loss allowance for trade receivables in accordance with the FReM guidance.

Trade receivables are grouped based upon credit risk characteristics and the number of past-due days. Default is defined as 90 days past due. The loss rates are estimated using the historic data for each aging group. Forward-looking information such as macroeconomic factors and entity specific situations are considered for entities with significant outstanding balances. Balances with other core central government departments are excluded from recognising stage-1 and stage-2 impairments following the FReM adaptions.

On this basis, the loss allowance as at 31 March 2019 determined as follows for trade receivables in the core Department:

| 31 March 2019 Core Department | Current | 1-30 days | 31-60 days | 61-90 days | 91+ days | Total | |-------------------------------|---------|-----------|------------|------------|----------|-------| | Expected Loss rate | 11% | 7% | 2% | 52% | 100% | | | Gross carrying amount- trade receivables (excluding other government debt) (£m) | 5 | 1 | 1 | 0 | 5 | 12 | | Loss allowance (£m) | 1 | 0 | 0 | 0 | 5 | 6 |

The loss allowance for trade receivable balances held by ALBs has been assessed at an organisation level and the total loss allowance estimated is immaterial for detailed disclosure on loss rates.

The movement in the allowance for provisions in respect of trade receivables during the year was disclosed below with the comparative amounts for 2017-18 reflecting the allowance for impairment losses under IAS 39. The Group has assessed the contract assets and lease receivables, and the ECL was estimated to be nil.

**Loans, bonds and term deposits**

Where possible, the Departmental Group monitors changes in credit risk by tracking published external credit ratings. For all assets other than those held by British Business Bank, an internal credit rating system, which was developed based on other established methodologies, was used to assign credit risks for loans that do not have external credit rating. The 12-month and lifetime probabilities of default are based upon Moody’s published research on the global default rate adjusted for historical repayment data and any macro-economic pressures which could impact the entity’s ability to repay the loan.

The British Business Bank (BBB) investments are assessed by BBB’s Valuation Committee. BBB produces credit risk ratings for its investments based upon a risk grading of the financial obligor and the estimated Loss Given Default on that investment. Further details can be found in BBB’s annual report and accounts.

The following table presents an analysis of credit quality of loans, bonds and term deposits. It indicates whether assets were subject to a 12-month ECL or lifetime ECL allowance, and whether they were credit-impaired.

| Credit rating | 12 month ECL | Amortised cost | 31 March 2019 | 31 March 2018 | |-------------------------------|--------------|----------------|---------------|---------------| | | £m | £m | £m | £m | | Low risk financial assets | 1,267 | - | 1,267 | 1,143 | | Medium risk financial assets | 310 | 25 | 337 | 145 | | High risk financial assets | 115 | 19 | 134 | 286 | | Default financial assets | - | - | 78 | 17 | | Total gross carrying amounts | 1,692 | 44 | 80 | 1,816 | | Loss allowance | (11) | (15) | (57) | (83) | | Carrying amount | 1,681 | 29 | 23 | 1,733 |

| 31 March 2019 | Loans and receivables | Available for sale | Held to maturity | Total | |---------------|-----------------------|--------------------|------------------|-------| | £m | £m | £m | £m | £m | | 1,591 | 118 | 7 | 1,716 | | (42) | - | - | (42) | | 1,549 | 118 | 7 | 1,674 | The Departmental Group does not hold any loans, bonds and term deposits measured at FVOCI.

The movement in the allowance for impaired loans, bonds and term deposits at amortised cost during the year was as follows.

| | 12m ECL | Lifetime ECL not impaired | Lifetime ECL credit impaired | Total | |--------------------------------|---------|---------------------------|-------------------------------|-------| | **Balance at 1 April** | - | - | - | - | | IFRS 9 Adjustment to opening balances | 11 | 11 | 45 | 67 | | **Revised balance at 1 April** | 11 | 11 | 45 | 67 | | Additions | 5 | 8 | 3 | 16 | | Net remeasurement | (3) | (2) | (1) | (6) | | Repayment | (1) | (2) | (2) | (5) | | Transfer to credit loss not impaired | - | - | 12 | 12 | | Transfer to credit loss impaired | (1) | - | - | (1) | | **Balance at 31 March** | 11 | 15 | 57 | 83 |

**Cash and cash equivalents**

The Group held cash and cash equivalents of £2,088 million as at 31 March 2019 (31 March 2018: £2,034 million). The cash and cash equivalents are held with banks and financial institutions which are rated AA- to AA+ based on S&P ratings.

Impairment on cash and cash equivalents has been measured on the 12-month expected loss basis and reflects the short maturities of the exposures. The Departmental Group considers that cash and cash equivalents have a low credit risk based on the external credit ratings of the holding parties.

**Financial guarantee contracts and loan commitments**

BBB’s ECF loan commitments were designated to be measured at FVTPL and the credit risk is, therefore, reflected in their fair value.

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument.

**Collateral**

The Departmental Group holds collateral over loans held at amortised cost. The collateral held is in the form of cash and buildings. The value of the assets held which are secured by collateral is £575 million (31 March 2018: £654m). The value of the collateral held is higher than the value of the assets secured by the collateral. The collateral was considered in estimating ECL.

**Market risk**

Market risk is the risk that fair values and future cash flows will fluctuate due to changes in market prices. Market risk generally comprises of:

a) Foreign Currency risk.

**Core Department**

The core Department is exposed to a small amount of currency risk with respect to Repayable Launch Investment contracts where income due from aircraft or engine sales may initially be based in US Dollars, but it is minimal in the context of the overall Repayable Launch Investment portfolio. Otherwise the core Department’s exposure to foreign currency risk during the year was insignificant. Foreign currency income was negligible, and foreign currency expenditure was a small percentage of total expenditure (less than 1%). All material assets and liabilities are denominated in pounds sterling.

**Agencies**

- **Forward contracts** - The UKSA pays an annual subscription in Euros to the European Space Agency (ESA) and has entered into forward contracts to mitigate the risk. These derivative contracts have been designated as cash flow hedges.

**NDPBs and other designated bodies**

- **Forward contracts** - UKRI are subject to foreign currency risks and have entered into forward contracts to help mitigate these risks. These derivative contracts have been designated as cash flow hedges by UKRI and at the reporting date the hedges met the IFRS 9 effectiveness criteria.

- **Cash and cash equivalents held in foreign currency** - BIS (Postal Services Act 2011) Company Limited, UKRI and Nesta Trust are subject to minor foreign currency risk through the maintenance of bank accounts in foreign currencies (predominantly USD and EUR) to deal with day-to-day overseas transactions.

**b) Interest Rate risk**

**Core Department**

The core Department does not invest or access funds from commercial sources, but it is exposed to interest rate risk with respect to the SFLGS and the EFG. For SFLGS and EFG, the core Department is exposed to interest rate risk, as the majority of the loan guarantees are provided against variable rate loans. The banks’ usual lending practices mean that fixed rate loans are usually available only for small value short term loans. To minimise the risk of default due to interest rate rises, accompanied by a decline in the economic environment, the core Department relies on the lenders assessment using best commercial practice to manage the risk of default.

**NDPBs and other designated bodies**

For BIS (Postal Services Act 2011) Company Limited interest rate risk arises from the effects of fluctuations in the prevailing levels of market interest rates on the fair value of financial assets and future cash flows. The Company holds fixed interest securities that are exposed to fair value interest rate risk. The principal strategy is to manage the fair value risk by holding the debt securities until maturity unless opportunities exist in the market for it to profit, for example, from any favourable interest rate movements. Interest rate risk is not expected to have a significant impact.

BBB holds both fixed and variable rate investments. Interest rate risk is regularly monitored by each organisation to ensure that the mix of fixed and variable borrowing is appropriate. BBB does not use derivatives to hedge interest rate risk.

The impact of interest rates affects the discount rate used to arrive at the fair value of the CfD liability held by LCCC. Changes in interest rates which affect the discount rate would therefore affect the Statement of Financial Position valuation. However, the Group is not financially exposed to this risk because the liability is funded through a levy on suppliers.

**c) Other Market risk**

**Core Department**

The core Department is exposed to wider risks relating to the performance of the economy as a whole. The main risks resulting from a downward movement in the economy include failures of investee companies of investment funds, loan defaults under the core Department’s EFG Scheme and negative impacts on the core Department’s repayable launch investment income and valuations from the potential resultant decrease in demand in the aerospace industry.

**NDPBs and other designated bodies**

UK Green Infrastructure Platform (UKGIP) is exposed to market risk through the concentration of investments in the clean energy sector. UKGIP is also exposed to equity price risk due to its investments in businesses developing construction assets across its priority sectors. The company intends to withdraw from the investments when these assets are operational in order to recycle their capital. The risk is minimised by spreading investments across all of its priority sectors. The Nesta Trust is exposed to equity price risk due to its investment of a portion of its endowment assets in publicly listed equity investments. Nesta Trust minimises this risk by investing for the medium to long term, diversifying its equity investments over a number of managers with complementary styles, and invests in investment funds with large institutional investors. The performance of these investment managers is monitored regularly.

**Inflation risk**

The CfD valuation is based on models which use assumptions about future prices. The amounts payable under the CfD contracts will be affected by the indexation of strike prices to reflect actual inflation and an inflation risk arises from the possibility of differences between the assumed inflation in the model and in the actual contracts. Inflation rates may not continue at the relatively low levels experienced in recent years; the Group is not financially exposed to this risk because the liability is funded through a levy on suppliers.

**Liquidity risk**

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities.

**The core Department and its Agencies**

In common with other Government departments, the future financing of its liabilities is to be met by future grants of Supply, voted annually by Parliament. There is no reason to believe that future approvals will not be forthcoming, therefore, on this basis the liquidity risk to the core Department and its Agencies is minimal.

**NDPBs and other designated bodies**

Information about the Departmental Group’s objectives, policies and processes for managing and measuring risk can be found in the Governance Statement.

**Commodity price risk**

Commodity price risk is the risk or uncertainty arising from possible price movements. The amounts payable under the CfD contracts are exposed to price risk through the fluctuations in future actual wholesale electricity prices, specifically, on how they will differ from the current forecast of future prices in the central scenario. However the LCCC and the department are not financially exposed to this risk because the liability is funded through a levy on suppliers.

**Financial instruments: fair value hierarchy**

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

- **Level 1** - uses quoted prices (unadjusted) in active markets for identical assets or liabilities;
- **Level 2** - uses inputs for the assets or liabilities other quoted prices, that are observable either directly or indirectly;
- **Level 3** - uses inputs for the assets or liabilities that are not based on observable market data, such as internal models or other valuation method. The following table presents the Departmental Group’s financial assets and liabilities that are measured at fair value at 31 March 2019 and 31 March 2018:

| Note | 31 March 2019 | 31 March 2018 | |------|---------------|---------------| | | Level 1 | Level 2 | Level 3 | Total | Level 1 | Level 2 | Level 3 | Total | | **Financial assets** | | | | | | | | | | **Available for sale** | | | | | | | | | | Ordinary shares in public sector bodies | 10.1 | - | - | - | - | 1,337 | - | 1,337 | | Ordinary shares in listed equities | 11.2 | - | - | - | - | 269 | - | 269 | | Ordinary shares in unlisted private equities | 11.2 | - | - | - | - | 9 | 308 | 317 | | Repayable launch investments | 11.1 | - | - | - | - | - | 1,047 | 1,047 | | Gilts and bonds | 11.2 | - | - | - | - | 59 | - | 59 | | Property related holdings | 11.2 | - | - | - | - | - | 42 | 42 | | Investment funds | 11.2 | - | - | - | - | - | 1,321 | 1,321 | | Other investments | 11.2 | - | - | - | - | 8 | 456 | 204 | 668 | | **Total available for sale financial assets** | - | - | - | - | 336 | 1,802 | 2,922 | 5,060 | | **FVOCI elected** | | | | | | | | | | Ordinary shares in public sector bodies | 10.1 | - | 1,404 | - | - | - | - | - | | Private sector shares | 11.2 | 8 | 47 | 21 | 76 | - | - | - | | **Total financial assets at FVOCI elected** | 8 | 1,451 | 21 | 1,480 | - | - | - | - | | **FVTPL mandatory** | | | | | | | | | | Repayable launch investments | 11.1 | - | - | 1,058 | 1,058 | - | - | - | | Investment funds | 11.2 | 187 | - | 1,781 | 1,968 | - | - | - | | Bonds | 11.2 | 1 | - | - | 1 | - | - | - | | Private sector shares | 11.2 | 88 | - | - | 88 | - | - | - | | Other investments | 11.2 | - | - | 68 | 68 | - | - | - | | Derivatives - Forward contracts | - | 24 | - | 24 | - | 109 | - | 109 | | **Total financial assets at FVTPL mandatory** | 276 | 24 | 2,907 | 3,207 | - | 109 | - | 109 | | **Total financial assets measured at fair value** | 284 | 1,475 | 2,928 | 4,687 | 336 | 1,911 | 2,922 | 5,169 | | **Financial Liabilities** | | | | | | | | | | **FVTPL mandatory** | | | | | | | | | | Loan commitment liabilities | 20 | - | - | (176) | (176) | - | - | - | | **Total liabilities at FVTPL mandatory** | - | - | (176) | (176) | - | - | - | - | | **FVTPL designated** | | | | | | | | | | Derivatives - Forward contracts | - | (15) | - | (15) | - | (15) | - | (15) | | Derivatives - CfD | 9 | - | - | (12,921) | (12,921) | - | (15,892) | (15,892) | | **Total financial liabilities at FVTPL designated** | - | (15) | (12,921) | (12,936) | - | (15) | (15,892) | (15,907) | | **Total financial liabilities measured at fair value** | - | (15) | (13,097) | (13,112) | - | (15) | (15,892) | (15,907) |

Transfers between levels of the fair value hierarchy are deemed to occur at the end of the reporting period. There were no transfers between level 1 and 2 during the year. Specific valuation techniques used to value financial instruments include:

- The fair value of the CfDs has been calculated using the income approach based on level 3 inputs, which reflects the present value of future cash flows that are expected to occur over the contract term of the CfD.

- For details regarding the fair value measurement of RLI’s, refer to note 11.1.

- The fair value of forward foreign exchange contracts is determined using forward exchange rate at the reporting date based on Level 2 inputs, with the resulting value discounted back to present value.

- Other techniques, such as discounted cash flow analysis or for non-quoted ordinary shares and investment funds that are not actively traded, the net assets of the company/underlying fund are used. These are classified as level 3.

- The fair value of Public Sector shares are based upon net assets and classified as level 2.

The following table presents the changes in level 3 instrument for the year ended 31 March 2019, excluding the CfDs which are disclosed in note 9.

| Ordinary shares in unlisted private equities | Repayable launch investments | Property related holdings, Investment funds and Other financial assets | Loan Commitment Liabilities | Total | |---------------------------------------------|------------------------------|---------------------------------------------------------------|-----------------------------|-------| | £m | £m | £m | £m | £m | | Balance at 1 April | 308 | 1,047 | 1,567 | 2,922 | | IFRS 9 transfers into level 3 | 10 | - | 1 | - | | IFRS 9 transfer between different investment categories | (298) | - | 298 | - | | IFRS 9 transfers in/out of fair value | - | - | (66) | (184) | | Balance at 1 April | 20 | 1,047 | 1,800 | 2,683 | | Additions | 18 | - | 509 | (38) | | Repayments/disposals | - | (230) | (436) | 46 | | Gains and losses recognised in CSoCNE | (17) | 241 | (24) | - | | Balance at 31 March | 21 | 1,058 | 1,849 | 2,752 |

The following table presents the changes in level 3 instrument for the year ended 31 March 2018, excluding CfDs which are disclosed in note 9.

| Ordinary shares in unlisted private equities | Repayable launch investments | Property related holdings, Investment funds and Other financial assets | Total | |---------------------------------------------|------------------------------|---------------------------------------------------------------|-------| | £m | £m | £m | £m | | Balance at 1 April | 429 | 1,205 | 1,327 | 2,961 | | Additions | 7 | - | 650 | 657 | | Repayments/disposals | (94) | (103) | (409) | (606) | | Gains and losses recognised in SoCNE | (34) | (55) | (1) | (90) | | Balance at 31 March | 308 | 1,047 | 1,567 | 2,922 | The most significant individual valuation using level 3 inputs in the Departmental Group excluding CfDs is Repayable Launch Investments; sensitivity analysis is detailed in note 11.1.

The sensitivity analysis for the significant valuations using level 3 inputs for property related holdings and investment funds are detailed in the financial statements of British Business Bank Plc and BIS (Postal Services Act 2011) Company Limited.

**Maturity profiles – discounted cashflows**

The maturity profile of the discounted cashflows for the CfDs excluding Hickley Point C is shown below:

| | < 1 year | 2-5 years | >5 years | Total | |----------------|----------|-----------|----------|-------| | £m | £m | £m | £m | £m | | As at 31 March 2018 | 581 | 4,596 | 10,715 | 15,892| | As at 31 March 2019 | 871 | 4,441 | 7,609 | 12,921|

**24 Contingent Liabilities**

The core Department has the following contingent liabilities:

| Basis of Recognition | Description | |----------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| | **Unquantifiable** | | | Core Department – Financial Reporting Council funding | A guarantee has been given to the Financial Reporting Council that, if the Council’s general voluntary funding from external sources falls sufficiently for the department to have to consider making legislation to activate the statutory levy under section 17 of the Companies (Audit, Investigations and Community Enterprise) Act 2004, the department will make such a grant to cover the Council’s costs as is sufficient to meet the preconditions in those levy raising powers provided the requisite funding has not been made available through another grant. | | Core Department - Coal Industry Act 1994 | Responsibility for compensation claims relating to personal injuries suffered by former British Coal mineworkers between 1947 and 31 December 1994 transferred to the department on 1 January 1998 by a restructuring scheme under the Coal Industry Act 1994. It is possible this liability could exceed the amount for which provision has been made in note 19 depending on court judgements relating to future claims. | | Core Department - Deeds relating to the Mineworkers’ Pension Scheme and British Coal Staff Superannuation Scheme under Paragraph 2(9) of Schedule 5 to the Coal Industry Act 1994 | Government guarantees were put in place on 31 October 1994, the day the schemes were changed to reflect the impact of privatisation of the coal industry. They are legally binding contracts between the scheme Trustees and the Secretary of State for Business, Energy and Industrial Strategy. The guarantees ensure that benefits earned by scheme members during their employment with British Coal, and any benefit improvements from surpluses which were awarded prior to 31 October 1994, will always be paid and will be increased each year in line with the Retail Prices Index. If, at any periodic valuation, the assets of the Guaranteed Fund of either scheme were to be insufficient to meet its liabilities, the assets must be increased to bring the Fund back into balance. This is a long-term contingent liability dependent on the performance of the schemes’ investments and their mortality experience. Further details regarding the schemes can be found in note 14. | | Core Department - Indemnity to Public Appointment Assessors | The Cabinet Secretary has provided a government-wide indemnity to Public Appointments Assessors (PAAs) against personal civil liabilities incurred in the execution of their PAA functions. | | Core Department - Nuclear agreements and treaties | The department has a range of civil nuclear liabilities arising through its association with the United Kingdom Atomic Energy Authority and British Nuclear Fuels Limited as well as ensuring that the Government complies with its obligations under the various international nuclear agreements and treaties. | | Basis of Recognition | Description | |----------------------|-------------| | Core Department - Site restoration liabilities inherited from British Coal | The department inherited responsibility from British Coal to reimburse certain third parties for costs incurred meeting statutory environmental standards in the restoration of particular coal-related sites. | | Core Department – National Dock Labour Board | Responsibility for compensation claims relating to personal injuries suffered by former National Dock Labour Board employees transferred to the department on 30 June 1990 under the Dock Work Act 1989. The timing and amounts of any future liabilities will depend on the nature of future claims and whether the courts decide that compensation is due and could exceed the amount for which provision has been made in note 19. | | Core Department – Supplier indemnity | An indemnity has been provided to a supplier in respect of potential liabilities arising from claims under the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). |

**Quantifiable**

| Basis of Recognition | Description | |----------------------|-------------| | Core Department – Loan guarantees (£45 million) | In order to encourage lending to smaller businesses, the department has guaranteed a portion of net losses on designated loan portfolios of participating banks (in excess of an agreed “first loss” threshold) in return for a fee under the ENABLE Guarantee programme administered by the British Business Bank. The department has approved guarantee facilities totalling £1 billion, of which £283 million is effective as at 31 March 2019 (31 March 2018: £nil) with a potential loss to the department of £45 million (31 March 2018: £nil). | | Core Department – Guarantees to British Business Bank (£206 million) | The department guarantees British Business Bank under the Enterprise Financial Guarantee and Help to Grow financial guarantee schemes. The Enterprise Financial Guarantee Scheme facilitates lending to viable businesses with the maximum obligation for the department capped at £205 million at 31 March 2019 (31 March 2018: £241 million). The amount lent under the Help to Grow scheme was £2.9 million at 31 March 2019 (31 March 2018: £1.8 million) with a maximum potential liability for the department at 31 March 2019 of £1 million. | | Core Department - Ofgem administration costs from the buy-out fund (£3.6-£3.8 million) | The department, the Scottish Government and the Northern Ireland Executive have undertaken to support Ofgem’s costs for administering the Renewables Obligation scheme (around £3.6 - £3.8 million) if there is insufficient money in both the buy-out fund and late payment fund to cover these costs. The size of the 2018-19 buy-out fund will not be known until October 2019. It is dependent in part on the availability and price of Renewable Obligation Certificates (ROCs) - if there is a surplus of ROCs, suppliers may be more inclined to meet their obligations by submitting ROCs but ultimately much depends on supplier behaviour which is difficult to predict. The department will have an indication of how many ROCs are available and whether there is likely to be a surplus after the end of the obligation year (31 March 2019) but will not know the size of the buy-out fund until October 2019. | | Core Department - Wave Hub transfer (£5 million) | The department has indemnified Cornwall Council up to 2028 in respect of the transfer of Wave Hub to a maximum of £5 million. | The Departmental Group has the following contingent liabilities, which are either unquantifiable or quantifiable contingent liabilities of more than £1 million in either this financial year or prior financial year. Other liabilities are disclosed in our partner organisation accounts.

| Basis of Recognition | Description | |----------------------|-------------| | **Unquantifiable** | | | Coal Authority - Environmental Legal Claims | Under the Environmental Information Regulations 2004 - The Coal Authority is aware of potential legal proceedings in respect of past fees paid for Mining Information. In the eventuality of receiving formal notification to commence legal proceedings, the Coal Authority will strongly defend its position. | | Coal Authority - Legal claims | The Coal Authority is subject to various claims and legal actions in the ordinary course of its activities. Where appropriate, provisions are made in the accounts on the basis of information available and in accordance with guidance provided under the FReM and IFRS. The Coal Authority does not expect that the outcome of the above issues will materially affect its financial position. | | Coal Authority - Restructuring Scheme | Where liabilities transferred under the various Coal Authority Restructuring Schemes (CARS) have crystallised due to planning conditions, agreements, claims etc, provision has been made in these financial statements. It has not, however, been possible to quantify contingent liabilities that may arise in the future. It is expected that any costs will be covered by future allocations of grant in aid. | | Coal Authority - Subsidence damage and public safety liabilities | Licensees of mining operations are required to provide security to the Coal Authority to cover the anticipated future costs of settling subsidence damage liabilities within their areas of responsibility. Outside the areas of responsibility of the holders of licences under Part II of the 1994 Act, the Coal Authority is responsible for making good subsidence damage. Where an area of responsibility is extinguished this would transfer to the Coal Authority who would become responsible for the discharge of outstanding subsidence liabilities. The Coal Authority also has an ongoing liability to secure and keep secured the majority of abandoned coal mines. In all cases the liability for operating collieries is the responsibility of the licensees/lessees and security is held to address those liabilities. The above liabilities have been provided for within the Public Safety and Subsidence provision based on analysis of trends and claims experience. However it is possible that significant, unexpected events outside of this provision may materialise. It is expected that any deficit will be covered by future allocations of grant in aid. | | CNPA - Legal Claims | There are a number of potential liabilities in respect of claims from employees, which depend on actual or potential proceedings. The timing and amounts of any payment are uncertain. These liabilities have not been provided for as the CNPA believes that the claims are unlikely to be successful and unlikely to lead to a transfer of economic benefits. | | CNPA - MFSS | The CNPA has a liability arising through its association with the Multi Force Shared Service (MFSS) for a share of costs incurred. The timing and amount of this liability is uncertain | | Insolvency Service - Cheques Act 1992 | Following the enactment of the Cheques Act 1992, the Secretary of State for BEIS has indemnified the Insolvency Service’s bankers against certain liabilities arising in respect of non-transferable “account payee” cheques due to insolvent estates and paid into the accounts of the agency. The Police Information Technology Organisation (Home Office) provides the Criminal Enforcement Team (formerly part of BEIS) with access to data from the Police National Computer (PNC). The Insolvency Service (and BEIS) has indemnified the police against any liabilities which they might incur as a result of providing that access. | | Insolvency Service: Police Information Technology Organisation | The Police Information Technology Organisation (Home Office) provides the Criminal Enforcement Team (formerly part of BEIS) with access to data from the Police National Computer (PNC). The Insolvency Service (and BEIS) has indemnified the police against any liabilities which they might incur as a result of providing that access. | | Basis of Recognition | Description | |----------------------|-------------| | NDA – Pension Schemes | Whilst not the lead employer, the NDA is the lead organisation and has ultimate responsibility for certain nuclear industry pension schemes, including the Combined Nuclear Pension Plan, the Magnox section of the ESPS, and the GPS Pension Scheme. Provisions for known deficits are included within Nuclear Provisions. However, movements in financial markets may adversely impact the actuarial valuations of the schemes, resulting in an increase in scheme deficits and consequent increase in nuclear provision. | | UKRI - Indemnity to Roslin Institute | The former BBSRC sponsored Roslin institute transferred to the University of Edinburgh on 13 May 2008. BBSRC agreed to provide indemnity for any potential costs that arise as a result of past actions of the institute and indemnity for any fall in grant income of the Neuropathogenesis Unit as a result of the transfer. The proportion of settlement UKRI will fund declines on an annual basis and is limited to claims up to May 2023. | | Others | There are a number of potential liabilities for the Department in respect of claims from suppliers, employees and third parties which depend on actual or potential proceedings. The timing and amounts of any liabilities are uncertain. |

### Quantifiable

| BBB – Financial guarantee (£2 million) | Under the Bank’s Help to Grow financial guarantee programme, the Bank has entered into financial guarantee agreements of £30 million (31 March 2018: £60 million). The Bank has guaranteed 75% of eligible lending to SMEs under these agreements and a counter guarantee is in place that guarantees 50% of the Bank’s 75% of eligible lending. As at 31 March 2019 the amount lent under these financial guarantee agreements was £3.2 million (31 March 2018: £1.8 million). During the year ending 31 March 2019 one of the guarantee agreements totalling £30 million has expired with no amounts lent under it. Since the balance sheet date, the remaining agreement totalling £30 million has expired with no further amounts being able to be lent under it. | | UKRI – (BBSRC) Contamination (£3 million) | As part of a Sale Agreement relating to a previous BBSRC site, BBSRC agreed to indemnify the purchaser against contamination resulting from dangerous substances. The indemnity was over a 10-year period commencing in 2013-14 and was capped at £3 million. | | UKRI – (BBSRC) Exit costs (£31 million) | Prior to 31 March 2018, some staff at BBSRC strategically funded institutes were on BBSRC terms and conditions. Whilst their direct salary costs are paid by the institutes, BBSRC is liable for any exit costs for these staff. The date and number of staff to take exit packages in any one year is unknown; however, if all staff were to take exit packages, the maximum liability is estimated at £31M, with the amount declining on an annual basis up to March 2025. | | UKRI – (Innovate UK) Decommissioning costs (£2.6 million) | UKRI has a contingent liability which may arise if UKRI has to provide a grant to Narec (Natural Renewable Energy Centre) in order for it to be able to decommission a weather monitoring platform in the North Sea. This is currently collecting data to support the development of an offshore wind test site. This may take place anytime between three and 25 years from now dependent on the development of the site, at an estimated cost of £2.6 million. | | UKRI – (MRC) Dilapidation (£0.6 million) | UK Research and Innovation (UKRI) has identified a contingent liability of £0.6 million (31 March 2018 £1.8 million) for dilapidation works that may be required at the end of property leases which are due to expire within the next year. | | UKRI – (STFC) Decommissioning costs (£1.7 million) | A contingent liability exists for European Synchrotron Radiation Facility (ESRF) decommissioning costs associated with the dismantling of the facility and infrastructures. Decommissioning occurs on winding up of ESRF. If exit by the UK (or any other Member) results in ESRF being wound up, the Members are required to arrange for decommissioning of ESRF’s plant and buildings and to meet the costs of doing so in proportion to their share of capital at the time of dissolution. The contingent liability is estimated to be £1.7 million. | | Basis of Recognition | Description | |----------------------|-------------| | UKRI – (STFC) Reprocessing and staff commitments (£13.6 million) | A contingent liability exists in respect of the Science and Technology Facilities Council (STFC)’s share of Institut Laue-Langevin (ILL) unfunded provisions for staff related costs (e.g., early retirement) and costs associated with reprocessing fuel elements. The contingent liability is estimated to be £13.6 million (31 March 2018: £13.7 million). | | UKRI – Tax Status change (£30 million) | Prior to the creation of UKRI, the Research Councils paid levels of tax consistent with charitable status, although they were not registered as charities. HMRC have indicated that, due to changes in legislation, they may review whether the Research Councils should have been applying charitable tax reliefs after 1 April 2012 without registering as charities. UKRI has a contingent liability relating to the potential clawback of previously applied Value Added Tax relief of £30 million. | | UKAEA – JET contract (£30 million) | United Kingdom Atomic Energy Authority has a contingent liability (capped at €30 million and approved by BEIS) in relation to the ongoing contract for JET operations with the European Commission. The contingent liability relates to the costs of operating JET during the period January 2020 to June 2021 in the event of key contract milestones not being met. The likelihood of the indemnity being called on is considered possible. | 25 Contingent assets

The core Department has the following contingent assets:

| Basis of Recognition | Description | |----------------------|-------------| | **Quantifiable** | | | Core Department - Deed Relating to the British Coal Staff Superannuation Scheme (BCSSS) under Paragraph 2(9) of Schedule 5 to the Coal Industry Act 1994 (£1.7 billion) | Within twelve months of 31 March 2033, the trustee of the BCSSS shall pay to “the Guarantor” (the Secretary of State) any surplus remaining on the scheme net of any amount retained for the obligation. The value of the surplus will depend on the value of scheme assets in relation to outstanding obligations. Based on the Government Actuary’s Department’s estimate of a £1.7 billion surplus as at 31 March 2015, the department considers a receipt from the scheme to be probable. |

The Departmental Group has the following contingent assets:

| Basis of Recognition | Description | |----------------------|-------------| | **Unquantifiable** | | | Coal Authority - Restructuring Schemes | By virtue of the seventh and ninth Coal Authority Restructuring Schemes (CARS 7 and 9) the Coal Authority is the beneficiary of restrictive covenants and clawback provisions relating to land and properties sold by the British Coal Corporation. In the event that the purchasers are able to retrospectively secure added value by obtaining planning consent for alternative uses the Authority will receive a share of the added value. Quantification of this asset is not possible. | | Coal Authority - Allen Court – Kirkcaldy | In excess of 25 damage notices have been submitted to the Coal Authority in respect of subsidence damage to properties at Allen Court, Kirkcaldy. £1.6 million of costs have been recognized as at 31 March 2019. The property development was undertaken following the provision of a permit by the Authority which incorporated indemnity clauses. The Coal Authority will continue to strongly pursue resolution and expects to recover its costs from the developer. |

26 Related-party transactions

The core Department is the parent of the bodies listed in note 28 ‘List of bodies within the Departmental Group’ – these bodies are regarded as related parties and various material transactions have taken place during the reporting period between members of the Departmental Group. The related parties of the consolidating bodies are disclosed in their respective accounts. The core Department is also the sponsor of Companies House, UK Intellectual Property Office (UKIPO), Met Office (Trading Funds), Ordnance Survey, NPL Management Limited, NNL Holdings Limited and British Nuclear Fuels.

The core Department has had various material transactions with other Government departments, Government bodies and devolved administrations comprising the Northern Ireland Executive, Scottish Government and Welsh Government. The most significant of these transactions have been HM Treasury, Post Office, HM Treasury’s consolidated fund, United Kingdom Research and Innovation, Nuclear Decommissioning Authority, UK Space Agency, BBB plc, Nuclear Liabilities Fund and Department for International Trade.

No minister, board member, key manager of the group or other related party have undertaken any material transactions with the core Department during the year. Details of the department’s ministers and senior mangers are shown in the Remuneration Report. Professor Dame Ann Dowling, Non-Executive Director of BEIS Departmental Board until May 2018 is an unpaid President and Chairman of the Board of Trustees of the Royal Academy of Engineering. The Royal Academy of Engineering received £28 million in grants from the core Department during the year.

Professor Dame Ann Dowling and her husband are employees of the University of Cambridge. The University of Cambridge received payments of £377 million from UK Research and Innovation (UKRI) during the year.

In the course of allocating funding during the year, UKRI entered into material transactions with various Higher Education Institutions. Where these bodies have board members who are also members of university councils, each body operates a policy that precludes interested parties from voting on the funding to the university in which they have an interest. Further details of these transactions can be found in statutory accounts of UKRI.

27 Restatement of Statement of Financial Position and Statement of Comprehensive Net Expenditure as a result of changes to the Departmental boundary and other restatements

Machinery of Government (MoG) restatements

On 1 April 2018, the core Department and Departmental Group had three MoGs and these are listed below;

Digital signatures

Responsibility for Digital Signatures including the trust service elements of the eIDAS Regulation No 91012014, transferred from the core Department to the Department for Digital, Culture, Media and Sport (DCMS). BEIS and DCMS will have a joint role in shaping the strategic relationship with the Open Data Institute, The Alan Turing Institute and Digital Catapult. The core Department and Departmental Group’s comparative net expenditure and net assets were not restated due to the Machinery of Government change being immaterial to both the departments. Had the core Department and Departmental Group’s comparative net expenditure been restated this would have resulted in a reduction in the core Department and Departmental Group’s net expenditure for 2017-18 of £0.1 million and a £nil movement in the core Department and Departmental Group’s net assets.

Strategic geospatial data policy initiatives

Responsibility for strategic geospatial data policy initiatives from the core Department which encompassed Public Sector Mapping Agreement, Postcode Address File and Open Source Data Agreement, were transferred to Cabinet Office to support the work of the Geospatial Commission. This resulted in the 2017-18 core Department and Department’s Group’s comparative net expenditure being reduced by £78 million, a corresponding £78 million reduction in the core Department’s Net parliamentary funding and a £0.1 million net assets movement.

UK Research and Innovation – Research England

Through the enactment of section 81 of the Higher Education and Research Act 2017, the Higher Education Funding Council for England (HEFCE) ceased to exist and closed on 31 March 2018. A transfer order was put in place at midnight on 31 March 2018 which transferred the remaining net liabilities from HEFCE to the Secretary of State for Education and then directly onto two public bodies. These were the Office for Students (OfS), sponsored by the Department for Education (DfE) and Research England (RE), which forms part of UK Research and Innovation (UKRI), sponsored by the core Department, both were established by the Higher Education and Research Act 2017. The existing assets, liabilities and staff of HEFCE were transferred between these entities in a practical way, which reflects the services they provide. Teaching and associated services are provided by the OfS and Research, Knowledge Exchange and associated services are provided by Research England. UKRI, have followed the FReM guidance to recognise the transfer of functions from HEFCE as a Transfer by Absorption, this resulted in the existing assets and liabilities transferred from HEFCE being recognised in UKRI at book values, without restating the prior year comparatives. From the date of the transfer, the combined results of the functions being recognised and disclosed in UKRI’s financial statements. In the core Department and Departmental Group, in accordance with the FReM the transfer is recognised as a Transfer by Merger, with comparatives restated if the transfer is material, to reflect the combined entity’s results as if they had always been combined.

The Departmental Group has not restated the prior year comparatives due to the impact on the Departmental Group accounts and the Statement of Parliamentary Supply being immaterial. This is because in previous years, the core Department funded, HEFCE via the Department for Education, this funding of £2 billion in 2017-18 was recognised in note 4.4 Grants as Science and research grants in the Departmental Group accounts, which is equivalent to the spend in HEFCE that would have related to Research England. If the grant was removed and Research England’s prior year spend was recognised, there would be an immaterial reclassification of £2.7 million from Science and research grants in note 4.4, and note 3 Staff Costs. The comparatives for the core Department have been restated, resulting in a £2 billion increase in Grant in Aid and corresponding reduction in Science and Research expenditure. This restatement is reversed out on consolidation, recognising the spend of Research England as Science and Research expenditure. Therefore, there is no impact on the Departmental Group values.

Changes in accounting policy

Accounting policies for financial instruments and revenues from contracts with customers have been updated to reflect the new accounting standards IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ adopted in year. The FReM removes the option to adopt IFRS 9 and IFRS 15 retrospectively, and therefore no restatements are required to the prior year figures. Any differences between the previous carrying amount and the carrying amount under the new accounting standards have been recognised as adjustments to opening balances on 1 April 2018. Detail of the impacts is discussed in note 1.6.

All investment classifications and accounting judgements in relation to the adoption of IFRS 9 in 2018-19 have been re-assessed, and as a result of this work, the department’s 33% ordinary shareholding in URENCO has been reclassified from an investment under IFRS 9/IAS 39 to an associate under IAS 28. The net financial statement impact of this for 2017-18 is £72 million to the Statement of Consolidated Net Expenditure, no restatement has been made.

### Impact of restatements on opening balances for the Departmental Group at 1 April 2018

| | Balance at 31 March 2018 per 2017-18 published accounts £m | Machinery of Government changes £m | Restated balance at 31 March 2018 £m | New accounting standard IFRS 9 £m | Restated balance at 1 April 2018 £m | |--------------------------------|-------------------------------------------------------------|-----------------------------------|--------------------------------------|----------------------------------|-----------------------------------| | **Consolidated Statement of Comprehensive Net Expenditure** | | | | | | | Net expenditure for the period | 86,489 | (78) | 86,411 | - | 86,411 | | Other comprehensive net income and expenditure | (351) | - | (351) | - | (351) | | **Total comprehensive expenditure** | 86,138 | (78) | 86,060 | - | 86,060 | | **Consolidated Statement of Financial Position** | | | | | | | Non-current assets | 14,409 | - | 14,409 | 32 | 14,441 | | Current assets | 4,328 | - | 4,328 | (2) | 4,326 | | Current liabilities | (8,313) | - | (8,313) | - | (8,313) | | Non-current liabilities | (257,139) | - | (257,139) | (15) | (257,154) | | General fund | 250,098 | - | 250,098 | (941) | 249,157 | | Revaluation reserve | (2,915) | - | (2,915) | 926 | (1,989) | | Charitable funds | (314) | - | (314) | - | (314) | | Non-controlling interests | (154) | - | (154) | - | (154) | | **Statement of Parliamentary Supply** | | | | | | | Resource DEL | 1,720 | (5) | 1,715 | - | 1,715 | | Capital DEL | 10,464 | (73) | 10,391 | - | 10,391 | | Resource AME | 75,124 | - | 75,124 | - | 75,124 | | Capital AME | (1,197) | - | (1,197) | - | (1,197) | | **Net outturn for the year** | 86,111 | (78) | 86,033 | - | 86,033 | 28 List of bodies within the Departmental Group

The table below shows the list of BEIS organisations that are included in the Government Resources and Accounts Act 2000 (Estimates and Accounts) Order 2018, known as the Designation Order. The individual Annual Report and Accounts for each of these bodies can be found on their own websites or via the Inside Government website (https://www.gov.uk/government/organisations/department-for-business-energy-and-industrial-strategy).

The bodies whose accounts have been consolidated within the Departmental Group accounts are shown in section (a) of the table. Bodies within the Departmental Group but not consolidated, such as where net assets are not considered material to the Departmental Group accounts, are indicated separately in section (b) of this table.

As a result of changes made in the 2018-19 Designation Order, some additional bodies are now included in the Departmental Group accounts boundary. Where boundary changes have an impact on previously reported financial results, these are shown in Note 27.

| Designated Body (linked bodies are indicated in italics below their parent body) | Status | Website (further information about linked bodies or those closed during the year is also included) | |---|---|---| | **(a) Bodies consolidated in Departmental Group accounts for 2018-19** | | **Executive Agencies** | | Insolvency Service | Executive Agency | [gov.uk/government/organisations/insolvency-service](https://www.gov.uk/government/organisations/insolvency-service) | | UK Space Agency | Executive Agency | [gov.uk/government/organisations/uk-space-agency](https://www.gov.uk/government/organisations/uk-space-agency) | | **NDPBs and other designated bodies** | | Advisory, Conciliation and Arbitration Service | NDPB | [acas.org.uk](https://acas.org.uk) | | Central Arbitration Committee | Linked but independent institution of ACAS | Consolidated by ACAS | | Certification Office for Trade Union and Employers’ Associations | Linked but independent institution of ACAS | Consolidated by ACAS | | BIS (Postal Services Act 2011) Company Limited | Limited Company owned by BEIS | [beta.companieshouse.gov.uk/company/07941521](https://beta.companieshouse.gov.uk/company/07941521) | | British Business Bank plc | Public Limited Company owned by BEIS | [british-business-bank.co.uk](https://british-business-bank.co.uk) | | BBB Patient Capital Holdings Limited | Limited Company | Consolidated by British Business Bank plc | | British Business Investments Ltd | Limited Company | Consolidated by British Business Bank plc | | British Business Finance Ltd | Limited Company | Consolidated by British Business Bank plc | | British Business Financial Services Ltd | Limited Company | Consolidated by British Business Bank plc | | Company Name | Type | Ownership/Status | |--------------------------------------------------|-----------------------|----------------------------------------------------------------------------------| | British Business Aspire Holdco Ltd | Limited Company | Consolidated by British Business Bank plc | | British Patient Capital Limited | Limited Company | Consolidated by British Business Bank plc | | Capital for Enterprise Fund Managers Limited | Limited Company | Consolidated by British Business Bank plc | | Capital for Enterprise (GP) Limited | Limited Company | Consolidated by British Business Bank plc | | Capital for Enterprise Limited | Limited Company | Consolidated by British Business Bank plc | | The Start-Up Loans Company | Limited Company | Consolidated by British Business Bank plc | | Civil Nuclear Police Authority¹ | NDPB | gov.uk/government/organisations/civil-nuclear-police-authority | | Coal Authority¹ | NDPB | gov.uk/government/organisations/the-coal-authority | | Committee on Fuel Poverty | NDPB | gov.uk/government/organisations/committee-on-fuel-poverty | | Committee on Radioactive Waste Management | NDPB | gov.uk/government/organisations/committee-on-radioactive-waste-management | | Competition Service | NDPB | catribunal.org.uk/244/Competition-Service.html | | Competition Appeal Tribunal | NDPB | catribunal.org.uk | | The Copyright Tribunal | NDPB | gov.uk/government/organisations/copyright-tribunal | | Cornwall and Isles of Scilly Investments Limited | Limited Company owned by BEIS | https://british-business-bank.co.uk/ourpartners/cornwall-isles-scilly-investment-fund-ciosif/ | | Council for Science and Technology | Expert Committee | gov.uk/government/organisations/council-for-science-and-technology | | Diamond Light Source Limited | Limited Company | diamond.ac.uk | | Dounreay Site Restoration Limited | Limited Company | dounreay.com | | Enrichment Holdings Ltd | Limited Company owned by BEIS | This is a special purpose vehicle for the Government’s investment in Urenco Limited. | | Company Name | Type | Website | Description | |--------------|------|---------|-------------| | Enrichment Investments Limited | Limited Company | emrssettlement.co.uk/ | Consolidated by Enrichment Holdings Limited | | Electricity Settlements Company Ltd | Limited Company owned by BEIS | | | | Fleetbank Funding Limited | Limited Company owned by BEIS | This is a vehicle for the Government to facilitate the Enable Loan Guarantee Scheme | | The Financial Reporting Council Limited | Limited Company | frc.org.uk | | | Harwell Science and Innovation Campus Public Sector Limited Partnership | Limited Partnership | Joint venture owned by UKRI and UK Atomic Energy Authority | | Industrial Development Advisory Board | Expert Committee | gov.uk/government/organisations/industrial-development-advisory-board | No accounts produced. Funded by BEIS and operated by the Insolvency Service. Costs are included as part of the core Department. | | LLW Repository Limited | Limited Company | llwrsite.com | Site Licence Company - private company, which operates sites on behalf of, and under contract from the NDA. | | Low Carbon Contracts Company Ltd | Limited Company owned by BEIS | lowcarboncontracts.co.uk/ | | | Low Pay Commission | NDPB | gov.uk/government/organisations/low-pay-commission | No accounts produced as costs are included in the core Department’s expenditure | | Magnox Limited | Limited Company | magnoxsites.com | Site Licence Company - private company, which operates sites on behalf of, and under contract from the NDA. | | Midlands Engine Investments Limited | Limited Company owned by BEIS | british-business-bank.co.uk/ourpartners/midlands-engine-investment-fund/ | | | The NESTA Trust | Charitable Trust | nesta.org.uk/faq/what_is_the_nesta_trust | | | Northern Powerhouse Investments Limited | Limited Company owned by BEIS | british-business-bank.co.uk/ourpartners/northern-powerhouse-investment-fund/ | | | Nuclear Decommissioning Authority | NDPB | gov.uk/government/organisations/nuclear-decommissioning-authority | | | Radioactive Waste Management Limited | Limited Company | Consolidated by Nuclear Decommissioning Authority | | | Sellafield Limited | Limited Company | sellafieldsites.com/ | Site Licence Company - private company, which operates sites on behalf of, and under contract from the NDA. | | Organization | Type | Website | Notes | |--------------|------|---------|-------| | Nuclear Liabilities Financing Assurance Board | Expert Committee | [gov.uk/government/organisations/nuclear-liabilities-financing-assurance-board](https://gov.uk/government/organisations/nuclear-liabilities-financing-assurance-board) | Costs are included in the core Department’s expenditure. | | Office of Manpower Economics | Part of the core Department | [gov.uk/government/organisations/office-of-manpower-economics](https://gov.uk/government/organisations/office-of-manpower-economics) | No accounts produced as costs are included in the core Department’s expenditure. | | Oil and Gas Authority | Limited Company owned by BEIS | [ogauthority.co.uk/](https://ogauthority.co.uk/) | | | Postal Services Holding Company Limited | Limited Company owned by BEIS | Company in liquidation. Former holding company for the Government’s investment in Post Office Limited. | | Regulatory Policy Committee | NDPB | [gov.uk/government/organisations/regulatory-policy-committee](https://gov.uk/government/organisations/regulatory-policy-committee) | No accounts produced as costs are included in the core Department’s expenditure. | | South Tees Site Company Limited | Limited Company owned by BEIS | [https://www.southteesdc.com/about-us/south-tees-site-company-ltd/](https://www.southteesdc.com/about-us/south-tees-site-company-ltd/) | This is a vehicle for managing the Government investment in the South Tees Site | | UK Climate Investments LLP | Limited Partnership between BEIS and UK Green Investment Bank | [greeninvestmentbank.com/funds/international/](https://greeninvestmentbank.com/funds/international/) | | | UK Climate Investments Indigo Limited | Limited Company | Consolidated by the UK Climate Investments LLP | | | UK Climate Investments Lakeside Limited | Limited Company | Consolidated by the UK Climate Investments LLP | | | UK Climate Investments VC Limited | Limited Company | Consolidated by the UK Climate Investments LLP | | | UK Green Infrastructure Platform Limited | Limited Company owned by BEIS | Investment vehicle managed by UK Green Investment Bank Limited on behalf of BEIS. | | United Kingdom Research and Innovation | NDPB | [https://www.ukri.org/](https://www.ukri.org/) | | | The Arts and Humanities Research Council | NDPB | Former Research Council now part of UKRI | | | The Biotechnology and Biological Sciences Research Council | NDPB | Former Research Council now part of UKRI | | | The Economic and Social Research Council | NDPB | Former Research Council now part of UKRI | | | The Engineering and Physical Sciences Research Council | NDPB | Former Research Council now part of UKRI | | | Medical Research Council | NDPB | Former Research Council now part of UKRI | | | The Natural Environment Research Council | NDPB | Former Research Council now part of UKRI | | | **The Science and Technology Facilities Council (STFC)** | NDPB | Former Research Council now part of UKRI | |--------------------------------------------------------|------|----------------------------------------| | **Innovate UK (trading name of The Technology Strategy Board)** | NDPB | Former Research Council now part of UKRI | | **Innovate UK Loans Limited** | Limited Company | Consolidated by UKRI | | **STFC Innovations Limited** | Limited Company | Consolidated by UKRI | | **UK Shared Business Services Limited** | Limited Company | uksbs.co.uk | | **United Kingdom Atomic Energy Authority** | NDPB | gov.uk/government/organisations/uk-atomic-energy-authority (corporate) ccfe.ac.uk (fusion research) | | **AEA Insurance Limited** | Limited Company | Consolidated by United Kingdom Atomic Energy Authority |

(b) Bodies not consolidated in Departmental Group accounts for 2018-19

| **British Hallmarking Council** | NDPB | gov.uk/government/organisations/british-hallmarking-council | |---------------------------------|------|-------------------------------------------------------------| | **Committee on Climate Change** | NDPB | theccc.org.uk/about/ | | **Daresbury SIC (PubSec) LLP** | Limited Liability Partnership | https://beta.companieshouse.gov.uk/company/OC360004 | | **Daresbury Science & Innovation Campus Limited** | Company Limited by Guarantee | www.sci-techdaresbury.com | | **East Midlands Early Growth Fund Limited** | Limited Company owned by BEIS | Recorded as investment in core Department accounts. Turnover and net assets are not material to Departmental Group accounts. | | **Groceries Code Adjudicator** | Office Holder and Corporation Sole | gov.uk/government/organisations/groceries-code-adjudicator | | **NDA Archives Limited** | Limited Company | gov.uk/government/organisations/nuclear-decommissioning-authority | | Turnover and net assets are not material to Departmental Group accounts. | | | NW VCLF HF LLP

Limited Liability Partnership

Recorded as investment in core Department accounts. Turnover and net assets are not material to Departmental Group accounts.

Pubs Code Adjudicator

Office Holder and Corporation Sole

gov.uk/government/organisations/pubs-code-adjudicator

Turnover and net assets are not material to Departmental Group accounts.

Research Sites Restoration Limited

Limited Company

Dormant – Site Licence Company

No costs or activities incurred in 2018-19 as the activities transferred to Magnox in 2016-17.

Small Business Commissioner

NDPB

https://www.smallbusinesscommissioner.gov.uk/

Turnover and net assets are not material to Departmental Group accounts.

Notes:

1. Entities fall in scope of the Trade Union (Facility Time Publication Requirements) Regulations 2017. Disclosure regarding Facility Time can be found in the relevant accounts.

2. During 2018-19 the Office of National Statistics (ONS) reclassified two of the department’s non-consolidated Executive Agencies, HM Land Registry and Companies House, from Public Corporations to Central Government Bodies. This reclassification would result in these entities being consolidated into the Departmental Group accounts from ONS’s reclassification. However, the department has received a derogation from HM Treasury to not consolidate these entities, until their Trading Fund status is revoked in Parliament, which is scheduled for 2020-21.

29 Events after the Reporting Period

Non-adjusting events

On 11 April 2019, the government confirmed agreement with the EU on an extension of Article 50, until 31 October 2019 at the latest, with the option to leave earlier as soon as a deal has been ratified. The department has disclosed a remote contingent liability in relation to EU Exit and the HM Government guarantee in the Parliamentary accountability disclosures in the Accountability report on page 105.

On 23 April 2019, it was announced that the responsibility for business Greenhouse Gas reporting guidance and regulations will transfer from the Department for Environment, Food and Rural Affairs to the Department for Business, Energy and Industrial Strategy.

29.1 Date Accounts authorised for issue

BEIS’s Accounting Officer has authorised these Accounts to be issued on the same day as they were certified. Trust Statement

The UK is a world leader in clean growth and low carbon services, whilst growing our national income. Accounting Officer’s foreword to the Trust Statement

Introduction and scope

The Department for Business, Energy and Industrial Strategy (BEIS) is responsible for collection of revenue, expenditure and cash flows for the schemes listed below. These amounts are collected by the Department for payment to the Consolidated fund. The Trust Statement also provides disclosure of any material income or expenditure not applied to the purposes Parliament intended or not conformed to the governing authorities.

- EU Emissions Trading Scheme
- Carbon Reduction Commitment
- Climate Change Agreements
- Energy Savings Opportunity Scheme

The EU Emissions Trading Scheme

Background

The EU Emissions Trading Scheme (ETS) is the largest multi-country, multi-sector greenhouse gas emissions trading system in the world. It includes more than 11,000 power stations and industrial plants across the EU with around 1,000 of these in the UK. These include power stations, oil refineries, offshore platforms and industries that produce iron and steel, cement and lime, paper, glass, ceramics and chemicals.

Other organisations, including universities and hospitals, may also be covered by the EU ETS depending upon the combustion capacity of equipment at their sites. Aviation operators flying into or from a European airport are also covered by the EU ETS.

The EU ETS works on a ‘cap and trade’ basis: there is a ‘cap’ or limit set on the total greenhouse gas emissions allowed by participants covered by the System. This cap is converted into tradable emission allowances.

Tradable emission allowances are allocated to participants in the market; in the EU ETS this is done via a mixture of free allocation and auctions. One allowance gives the holder the right to emit one tonne of CO₂ (or its equivalent). Participants covered by the EU ETS must monitor and report their emissions each year and surrender enough allowances to cover their annual emissions.

Participants who are likely to emit more than their allocation have a choice between taking measures to reduce their emissions or buying additional allowances, either bilaterally between operators from the secondary carbon market or from Member State-held auctions.

The carbon price signifies the amount paid per EU Allowance (EUA) which is based on demand and supply. There are currently separate EU Aviation Allowances (EUAA) for airline operators.

The first phase of the EU ETS ran from 2005 to 2007 and the second phase ran from 2008 to 2012 to coincide with the first Kyoto Commitment Period. The EU ETS is now in Phase III (2013 to 2020), and this builds upon the previous two phases ensuring a greater contribution to tackling climate change. There is a single EU-wide cap for Phase III. Each Member State was required to submit a list of all the participants that will be included in Phase III, setting out its proposed levels of free allocation in accordance with the revised ETS Directive.

The UK Government appointed ICE Futures Europe to conduct auctions of EU ETS Phase III on its behalf from November 2012. An extension of two years (the maximum allowed for in the EU Auctioning Regulation), was then permitted until November 2017. Following an open-competition through the Official Journal of the European Union to re-procure the UK’s auction platform upon expiry of the original contract, ICE Futures Europe were awarded a new contract to conduct UK auctions from November 2017. The auction calendars from 2013 to 2018 are available on the ICE auctions web pages at www.theice.com/emissions/auctions

The UK held 19 auctions of EUA allowances in 2018-19. A total of 82,679 million allowances were auctioned successfully. There was one EUAA auction of 860,000 allowances held in 2018-19. Future developments

In December 2018 the European Commission confirmed that from 01 January 2019 the relevant processes for the UK in the Union Registry would be temporarily suspended until the day after ratification instruments concerning the withdrawal agreement are deposited. As stated on the Commission website: ‘from 1 January 2019 onwards the UK will not be able to auction allowances, allocate allowances for free to operators or exchange international credits for as long as this suspension remains in place’. In line with the suspension notification of the Commission, the UK government will not issue any 2019 allowances unless and until the suspension is lifted.

On leaving the EU, the UK Government and Devolved Administrations have clearly stated their preference for a UK national greenhouse gas emissions trading system (UK ETS) linked to the EU ETS as set out in the Political Declaration. Linking a UK ETS to the EU ETS is subject to negotiations and cannot be guaranteed. Therefore potential ‘fall-back’ options remain in consideration in the event that a linked ETS cannot be achieved. Fall-back options do not preclude the opportunity to achieve a linked carbon pricing system in the future and include the UK introducing its own UK ETS, which would not be linked to the EU ETS, the introduction of a tax on carbon, and participating in Phase IV of the EU ETS. All options will deliver on the Clean Growth Strategy commitments: any carbon pricing system will be at least as ambitious as remaining in the EU ETS and deliver a smooth transition for businesses.

Financial summary

The UK held 19 EUA auctions and 1 EUAA auction. This yielded a total income of £1,271 million (2017-18: £571 million) – as shown in note 2.2 of the Trust Statement. All auctions were wholly competitive auctions. The increase in income in 2018-19 was due to an increase in price of EU ETS allowances over the period compared to 2017-18.

The total income was passed to the Consolidated Fund within a few days of each auction. Auctions were completed in Euros and converted to sterling. Exchange rate differences amounted to £1,248,000 (2017-18: £424,000). The exchange differences are recognised in the Statement of Revenue, Other Income and Expenditure.

The Environmental Agency, as regulator, imposed 204 civil penalties amounting to £2,635,535 (2017-18: 137 penalties totalling £1,892,941). Most of the penalties relate to non-compliance in meeting installation targets under the UK small emitter opt-out scheme, for those who have opted-out of the main requirements of the ETS. The opt-out requires that installations must keep their emissions below a set target. A penalty is charged for every tonne of CO₂ above the emission target. Some of these penalties (for example on aviation) relate to previous compliance years.

OPRED (Offshore Petroleum Regulator for Environment and Decommissioning) also issued 5 penalties in 2018-19, amounting to £109,553 (2017-18: 7 penalties totalling £127,643). The offshore industry is regulated by OPRED, a discrete directorate within BEIS. The sanctions relate to a backlog of failures to surrender sufficient allowances and to comply with a permit condition. OPRED expects the number of penalties to increase as they identify more compliance issues. The relevant Civil Sanctions Guidance has been published alongside the civil penalties. The costs associated with administering the scheme were borne by the Department – shown in note 3 and included within the Department’s Accounts.

Carbon Reduction Commitment Energy Efficiency Scheme

Background

The Carbon Reduction Commitment Energy Efficiency Scheme (CRC) is a mandatory scheme covering large, non-energy intensive, users of energy in the public and private sectors (5,000+ organisations). The organisations must use over 6GWh of qualifying electricity and therefore must monitor their energy use and report their energy supplies annually. They must buy allowances for each tonne of carbon dioxide equivalent of emissions. In March 2016 it was announced that the CRC scheme would close following the 2018-19 compliance year to simplify the business energy efficiency tax landscape. Organisations will report under the CRC for the last time by the end of July 2019 and surrender allowances for emissions from energy supplied in the 2018-19 compliance year by the end of October 2019. Participants in the scheme are required to maintain their records until 2025 so they are available for audit. The CRC regulations specify that refunds maybe granted up to 2025, BEIS are currently considering the approach to handling refund requests post 31 March 2022.

The Streamlined Energy and Carbon Reporting framework (SECR) launched on 1 April 2019 and replaces the reporting elements of the CRC energy efficiency scheme.

The financial year 2018-19 saw the fifth forecast sale for Phase II of the scheme (for compliance year 2018-19) and the fourth buy-to-comply sale (for compliance year 2017-18). The prices across the scheme are as follows:

| CRC scheme year | Compliance sale price | Forecast sale price | |-----------------|-----------------------|---------------------| | 2018-19 | £18.30 | £17.20 | | 2017-18 | £17.70 | £16.60 | | 2016-17 | £17.20 | £16.10 | | 2015-16 | £16.90 | £15.60 | | 2014-15 | £16.40 | £15.60 |

Financial summary

Allowance sales under the CRC scheme in 2018-19 generated £440 million (2017-18: £580 million). There were 6 civil penalties levied against CRC participants. The civil penalties amounted to £69,090 (2017-18: £49,000). The costs incurred in administering the CRC Scheme were borne by the Department as shown in note 3 and included within the Department’s Accounts.

Climate Change Agreements

Background

Climate Change Agreements (CCAs) are voluntary agreements that allow businesses in 53 energy intensive sectors to receive up to a 93% reduction in the Climate Change Levy (CCL) in exchange for meeting stretching energy efficiency/carbon targets. The CCA scheme was launched on 1 April 2013 and runs until 31 March 2023. If all sectors meet their targets from 2013 to 2020 against agreed baselines, the scheme is estimated to deliver a reduction in emissions of 19 metric tonnes CO₂ (based on a 2008 baseline) and savings to participants on the CCL of between £200-£300 million each year.

The CCA generates three potential money streams:

Charging income

Paid by CCA participants to the Administrator on an annual basis, in accordance with a charging scheme established under paragraph 52C Finance Act 2000, Schedule 6 (as amended by Finance Act 2012). These monies are retained by the Environment Agency and will not feature in the Trust Statement.

Civil penalties

Payments received by the Administrator for minor infractions, passed by the Department to the Consolidated Fund in accordance with powers given in 52F Finance Act 2000, Schedule 6 (as amended by Finance Act 2012). The amounts are specified in The Climate Change Agreements (Administration) Regulations 2012.

Buy-out payments

Payments made by participants at the end of each 2-year target period in cases where CCA targets are not met. For the first two target periods for the scheme up to 31 December 2016, payments were calculated on the basis of £12 per tonne of CO₂ by which the target is exceeded. From 1 January 2017, this has been increased to £14 per tonne of CO₂, for which the powers are given in 52F Finance Act 2000, Schedule 6 (as amended by Finance Act 2012). The amount is specified in The Climate Change Agreements (Administration) Regulations 2012 (as amended in 2016). The collection of buy-out payment income commenced in 2015-16 in respect of the first Target Reporting Period and will continue for both buy-out payments and civil penalties, until the scheme ends in 2023. The income distribution is explained under the section on Financial Review.

Future developments

BEIS are currently evaluating the CCA scheme, this will conclude by the end of 2019 with a report published by the end of March 2020. This will help inform any potential future CCA scheme.

Financial summary

In 2018-19, the income from buy-out payments generated £107,760 (£22.966 million in 2017-18), as shown in note 2.3 of the Trust Statement. The lower income in the current reporting year was due to 2018-19 being a period of secondary reporting for Target Reporting Period II, where participants make further top-up buy-out payments after an audit or they receive a refund if they have been overpaid. By comparison the prior year comparatives reflect the primary reporting period income for Target Reporting Period II.

2 civil penalties were issued under the CCA scheme for the first time totalling £565 income.

Energy Savings Opportunity Scheme

Background

The Energy Savings Opportunity Scheme (ESOS) is an energy assessment scheme, mandatory for all large undertakings in the UK. The Government established ESOS in response to the requirements of Article 8 (4-6) of the EU Energy Efficiency Directive. Qualifying organisations must carry out audits every 4 years of the energy used by their buildings, industrial processes and transport to identify cost-effective energy saving measures. We are now in the second phase of the scheme, which commenced on 31 December 2018. The scheme runs until 5 December 2027.

In Phase 1 there were 6,075 Ultimate Parent organisations in the scheme. The Environment Agency and equivalent regulators in the devolved administrations are responsible for ensuring ESOS compliance. Participants who fail to comply with the scheme could be fined up to £50,000. The first penalties under ESOS were imposed in March 2018. ESOS is estimated to deliver a net benefit to the UK of £1.6 billion (between 2015-2030).

There are currently no charges for registering with the scheme.

Future developments

BEIS are currently evaluating ESOS to identify any potential changes to the scheme, especially in relation to supporting the ambition to enable businesses and industry to improve energy efficiency by at least 20% by 2030.

Financial summary

The income stream consists of non-compliance penalties. 28 penalties totalling £272,202 were issued in 2018-19 (2017-18: 5 penalties totalling £17,110)

Remote contingent liabilities

Audited information

On 29 March 2017, the UK Government submitted its notification to leave the EU in accordance with Article 50. The triggering of Article 50 started a two-year negotiation process between the UK and the EU. On 11 April 2019, the government confirmed agreement with the EU on an extension until 31 October 2019 at the latest, with the option to leave earlier as soon as a deal has been ratified. Any subsequent changes in legislation, regulation and funding arrangements are subject to the outcome of the negotiations. As a result, an unquantifiable contingent liability is disclosed. In accordance with accounting standards, no contingent assets can be recognised.

Further information on the core Department’s remote contingent liability relating to the UK leaving the EU is detailed on page 105.

Auditors

These financial statements have been audited, under the Exchequer and Audit Departments Act 1921, by the Comptroller and Auditor General, who is appointed under statute and reports to Parliament. The audit opinion is on 234 to 236. The auditor’s notional remuneration is included within the Department’s Accounts. There were no fees in respect of non-audit work.

Basis for preparation

The HM Treasury Accounts Direction, issued in accordance with Section 2 of the Exchequer and Audit Departments Act 1921 requires the Department to prepare the Trust Statement to give a true and fair view of the state of affairs relating to the collection and allocation of the carbon allowance auction receipts for the EU Emissions Trading Schemes, the allowances sales from the CRC scheme, buy-out payments from the CCA Scheme and civil penalties receivable under the EU ETS, CRC, CCA and ESOS schemes. Regard is given to all relevant accounting and disclosure requirements given in Managing Public Money and other guidance issued by HM Treasury. Accounting judgements

As the Accounting Officer, it is my responsibility to apply suitable accounting policies in the preparation of the Trust Statement. Revenues are recognised in the period in which the event that generates the revenue takes place, consequently the anticipated proceeds from future auctions and licences as detailed in note 2 are not recognised as assets within this statement. All the transactions within the Trust Statement reflect transactions that have taken place.

Events after the reporting period

Details of events after the reporting period are given in note 10 to the Trust Statement.

Governance statement

The Department’s governance statement covers both the Accounts and the Trust Statement, and is included in the Governance section of this report.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019 Statement of Accounting Officer’s responsibility for the Trust Statement

Under section 2 of the Exchequer and Audit Departments Act 1921, HM Treasury has directed the Department for Business, Energy and Industrial Strategy to prepare for each financial year a Trust Statement in the form and on the basis set out in the Accounts Direction.

HM Treasury has appointed the Permanent Secretary as Accounting Officer of the Department for Business, Energy and Industrial Strategy with overall responsibility for preparing the Trust Statement and for transmitting it to the Comptroller and Auditor General.

The Accounting Officer is responsible for ensuring that: there is a high standard of financial management, including a sound system of internal control; that financial systems and procedures promote the efficient and economical conduct of business and safeguard financial propriety and regularity; that financial considerations are fully taken into account in decisions on policy proposals; and that risk is considered in relation to assessing value for money.

The Accounting Officer is responsible for the fair and efficient administration of the EU ETS including conducting the auction of EU Allowances in the UK for Phase III of the Scheme and Aviation allowances of the EU ETS, collection of the proceeds and onward transmission of the funds in their entirety to the Consolidated Fund. The Accounting Officer is also responsible for the collection of CRC Allowances and CCA buy-out payments for onward transmission to the Consolidated Fund and, the collection of civil penalties levied under the EU ETS, CCA, CRC, and ESOS schemes for onward transmission to the Consolidated Fund.

The responsibilities of the Accounting Officer, including responsibility for the propriety and regularity of the public finances for which an Accounting Officer is answerable, for keeping proper records and for safeguarding the Department’s assets, are set out in Managing Public Money published by HM Treasury.

The Trust Statement must give a true and fair view of:

- the statement of affairs of the EU ETS, CCA Schemes and penalties issued under the EU ETS, ESOS, CCA and CRC Schemes

These streams of income are recognised on an accruals basis;

- the state of affairs of the CRC Allowance Scheme sales which are recognised on a cash received basis

- the revenue collected, and expenditure incurred together with the net amounts surrendered to the Consolidated Fund

In preparing the Trust Statement, the Accounting Officer is required to comply with the requirements of the Government Financial Reporting Manual and in particular to:

- observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis

- make judgements and estimates on a reasonable basis

- state whether applicable accounting standards as set out in the Government Financial Reporting Manual have been followed, and disclose and explain any material departures in the accounts

- prepare the Trust Statement on a going-concern basis

Accounting Officer’s confirmation

I have taken all the steps that I ought to have taken to make myself aware of any relevant audit information and to establish that the Department’s auditors are aware of that information. The annual report and accounts as a whole is fair, balanced and understandable. I take personal responsibility for the annual report and accounts and the judgements required for determining that it is fair, balanced and understandable.

Alex Chisholm Permanent Secretary and Principal Accounting Officer 8 July 2019 The Trust Statement Audit Report of the Comptroller and Auditor General to the House of Commons

Opinion on financial statements I have audited the financial statements of Department for Business, Energy and Industrial Strategy Trust Statement (“the Trust Statement”) for the year ended 31 March 2019 under the Exchequer and Audit Departments Act 1921. The financial statements comprise the Statement of Revenue, Other Income and Expenditure, the Statement of Financial Position, the Statement of Cash Flows and the related notes, including the significant accounting policies. These financial statements have been prepared under the accounting policies set out within them.

In my opinion: • the Trust Statement gives a true and fair view of the state of affairs of balances stemming from: the collection of EU Emissions Trading Scheme (ETS) auction receipts; Carbon Reduction Commitment (CRC) allowance sales; Climate Change Agreements (CCA) receipts; and EU ETS, CRC, CCA, and Energy Savings Opportunity Scheme (ESOS) civil penalties as at 31 March 2019 and of the net revenue for the year then ended; and • the financial statements have been properly prepared in accordance with the Exchequer and Audit Departments Act 1921 and HM Treasury directions issued thereunder.

Opinion on regularity In my opinion, in all material respects the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

Basis of opinions I conducted my audit in accordance with International Standards on Auditing (ISAs) (UK) and Practice Note 10 ‘Audit of Financial Statements of Public Sector Entities in the United Kingdom’. My responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of my certificate. Those standards require me and my staff to comply with the Financial Reporting Council’s Revised Ethical Standard 2016. I am independent of the Department in accordance with the ethical requirements that are relevant to my audit and the financial statements in the UK. My staff and I have fulfilled our other ethical responsibilities in accordance with these requirements. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

Conclusions relating to going concern I am required to conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Department’s ability to continue as a going concern for a period of at least twelve months from the date of approval of the financial statements. If I conclude that a material uncertainty exists, I am required to draw attention in my auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of my auditor’s report. However, future events or conditions may cause the entity to cease to continue as a going concern. I have nothing to report in these respects.

Responsibilities of the Accounting Officer for the audit of the financial statements As explained more fully in the Statement of Accounting Officer’s responsibility for the Trust Statement, the Accounting Officer is responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

Auditor’s responsibilities for the audit of the financial statements My responsibility is to audit, and report on the financial statements in accordance with the Exchequer and Audit Departments Act 1921. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs (UK), I exercise professional judgment and maintain professional scepticism throughout the audit. I also:

- identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

- obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Department’s internal control.

- evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

- evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

I communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

I am required to obtain evidence sufficient to give reasonable assurance that the income and expenditure recorded in the financial statements have been applied to the purposes intended by Parliament and the financial transactions recorded in the financial statements conform to the authorities which govern them.

**Other information**

The Accounting Officer is responsible for the other information. The other information comprises information included in the Accounting Officer’s foreword to the Trust Statement and Statement of the Accounting Officer’s responsibility for the Trust Statement, but does not include the financial statements and my auditor’s report thereon. My opinion on the financial statements does not cover the other information and I do not express any form of assurance conclusion thereon. In connection with my audit of the financial statements, my responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or my knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work I have performed, I conclude that there is a material misstatement of this other information, I am required to report that fact. I have nothing to report in this regard.

**Opinion on other matters**

In my opinion:

- the information given in the Accounting Officer’s foreword to the Trust Statement and Statement of the Accounting Officer’s responsibility for the Trust Statement for the financial year for which the financial statements are prepared is consistent with the financial statements. Matters on which I report by exception

I have nothing to report in respect of the following matters which I report to you if, in my opinion:

- adequate accounting records have not been kept or returns adequate for my audit have not been received from branches not visited by my staff; or
- the financial statements are not in agreement with the accounting records and returns; or
- I have not received all of the information and explanations I require for my audit; or
- the Governance Statement does not reflect compliance with HM Treasury’s guidance.

Gareth Davies Comptroller and Auditor General National Audit Office 157-197 Buckingham Palace Road Victoria London SW1W 9SP 10 July 2019

## Statement of Revenue, Other income and Expenditure

for the year ended 31 March 2019

| Note | 2018-19 £'000 | 2017-18 £'000 | |------|---------------|---------------| | **Revenue** | | | | **Licence fees and taxes** | | | | Carbon Reduction Commitment allowance sales | 2.1 | 440,280 | 580,201 | | EU Emissions Trading Scheme auction income | 2.2 | 1,270,535 | 570,688 | | Climate Change Agreements buy-out payments income | 2.3 | 108 | 22,966 | | **Total licence fees and taxes** | | 1,710,923 | 1,173,855 | | **Fines and penalties** | | | | Civil penalties – EU Emissions Trading scheme | 2.4 | 2,745 | 2,021 | | Civil penalties – Energy Savings Opportunity Scheme | 2.4 | 272 | 17 | | Civil penalties – Carbon Reduction Commitment Scheme | 2.4 | 69 | 49 | | Civil penalties – Climate Change Agreements | 1 | - | - | | **Total fines and penalties** | | 3,087 | 2,087 | | **Total revenue and other income** | | 1,714,010 | 1,175,942 | | **Expenditure** | | | | EU Emissions Trading Scheme costs | 3.1 | (1,269) | (432) | | Credit losses – debts written off | 3.2 | - | (972) | | **Total expenditure** | | (1,269) | (1,404) | | **Net revenue for the Consolidated Fund** | | 1,712,741 | 1,174,538 |

There were no recognised gains or losses accounted for outside of the above Statement of Revenue, Other Income and Expenditure.

The notes on pages 240 to 245 form part of this statement. Statement of Financial Position

as at 31 March 2019

| Note | 31 Mar 2019 £'000 | 31 Mar 2018 £'000 | |------|-------------------|-------------------| | **Current assets** | | | | Receivables and accrued fees | 4 | 2,797 | 1,471 | | Cash and cash equivalents | 5 | 27,898 | 23,921 | | **Total current assets** | | 30,695 | 25,392 | | **Current liabilities** | | | | Payables | 6 | (324) | (404) | | **Total current liabilities** | | (324) | (404) | | **Net current assets** | | 30,344 | 24,988 | | **Total net assets** | | 30,371 | 24,988 |

Represented by:

Balance on Consolidated Fund Accounts | 7 | 30,371 | 24,988 |

The notes on pages 240 to 245 form part of this statement.

Alex Chisholm Permanent Secretary and Principal Accounting Officer

8 July 2019

## Statement of Cash Flows

for the year ended 31 March 2019

| Note | 2018-19 £'000 | 2017-18 £'000 | |------|---------------|---------------| | **Net cash flows from operating activities** | | | | A | 1,711,335 | 1,175,406 | | Cash paid to the Consolidated Fund | 7 | (1,707,358) | (1,168,572) | | **Increase/(decrease) in cash in this period** | B | 3,977 | 6,834 |

### Notes to the statement of Cash Flows

| Note | 2018-19 £'000 | 2017-18 £'000 | |------|---------------|---------------| | **A: Reconciliation of Net Cash Flow to Movement in Net Funds** | | | | Net Revenue for the Consolidated Fund | 7 | 1,712,741 | 1,174,538 | | (Increase)/decrease in receivables and accrued fees | 4 | (1,326) | 982 | | Increase/(decrease) in payables | 6 | (80) | (114) | | **Net cash flows from operating activities** | | 1,711,335 | 1,175,406 | | **B: Analysis in changes in Net Funds** | | | | Increase/(decrease) in cash in this period | | 3,977 | 6,834 | | Net Funds as at 1 April (net cash at bank) | 5 | 23,921 | 17,087 | | **Net Funds as at 31 March (closing balance)** | 5 | 27,898 | 23,921 | Notes to the Trust Statement

1 Statement of Accounting Policies

1.1 Basis of Accounting The Trust Statement is prepared in accordance with the accounts direction issued by HM Treasury under section 2 of the Exchequer and Audit Departments Act 1921. The Trust Statement is prepared in accordance with the accounting policies detailed below. These have been agreed between the Department for Business, Energy and Industrial Strategy (the Department) and HM Treasury and have been developed in accordance with International Financial Reporting Standards (IFRS) and other relevant guidance. The accounting policies have been applied consistently in dealing with items considered material in relation to the accounts.

The income and associated expenditure contained in the Departmental Trust Statement are those flows of funds which the Department administers on behalf of the Consolidated Fund.

The financial information in the Trust Statement is rounded to the nearest £’000.

The Trust Statement is presented in pounds sterling, which is the functional currency of the Department.

1.2 Accounting convention The Trust Statement has been prepared in accordance with the historical cost convention.

1.3 Revenue Recognition IFRS 15 ‘Revenue from Contracts with Customers’ was adopted on 1 April 2018. This replaced IAS 18 ‘Revenue’ and IAS 11 ‘Construction Contracts’. The FReM extends the definition of a contract under IFRS 15 para 9 to include legislation and regulations which enable an entity to obtain revenue that is not classified as a tax by the Office of National Statistics (ONS). As both EU-ETS auction income and CRC allowances sales are classified as taxes by ONS and CCA income meets the definition of a tax under ONS’s guidance, IFRS 15 is not applicable to the material revenue streams of the BEIS Trust Statement.

Income from these schemes is recognised as follows:

- EU ETS receipts represent proceeds from the auction of carbon allowances under Phase III and aviation allowances of the EU ETS. Revenue is recognised at the close of each competitive auction, when the revenue can be measured reliably.
- Revenue in respect of CRC allowance sales is recognised on a cash received basis by agreement with HM Treasury.
- Revenue in respect of CCA buy-out payments is recognised on an accruals basis, albeit the recognition point is when the income is received.
- Revenue in respect of civil penalties is recognised when the penalty is imposed. In 2018-19, civil penalties for the CCA are recognised for the first time.

All result in a cash flow to the Consolidated Fund. This has resulted in no difference to the income recognition methodology applied in previous years.

CRC participants may request refunds for over-surrendered allowances (note 9 Contingent Liabilities refers). These are accounted for in the period in which the refund request is authorised and processed.

1.4 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets and financial liabilities are recognised in the Statement of Financial Position when the Department becomes a party to the contractual provisions of an instrument. 1.5 Financial assets For the purposes of this Trust Statement, the Department holds financial assets in the following categories:

- Receivables held at amortised cost;
- Cash and cash equivalent.

Both receivables and cash and cash equivalents are held at amortised cost following the adoption of IFRS 9 ‘Financial Instruments’ as a replacement for IAS 39 ‘Financial Instruments: Recognition and Measurement’ from 1 April 2018. There were no changes in terms of measurement for these assets upon transition.

Receivables held at amortised cost comprise:

- for EU ETS the amounts due from Primary Participants in respect of established auction liabilities for which, at the financial year end, payments had not been received. The amounts due are calculated at the close of each auction and have a maturity of less than three months;
- civil penalties levied against participants in the EU ETS, ESOS, CCA and CRC Schemes, amounts for which have not been received at the financial year end.

Cash and cash equivalents comprise current balances with banks and other financial institutions, which are readily convertible to known amounts of cash and which are subject to insignificant risk of changes in value and have an original maturity of three months or less.

1.6 Financial liabilities For the purposes of this Trust Statement the Department holds financial liabilities in the following category:

- Other financial liabilities

Other financial liabilities comprise:

- Payables in the Statement of Financial Position. Payables are amounts established as due at the reporting date, but where payment is made subsequently. Since these balances are expected to be settled within 12 months of the reporting date there is no material difference between fair value, amortised cost and historical cost.

The adoption of IFRS 9 has not had a significant effect on the Department’s accounting policies for financial liabilities

1.7 Foreign currency Transactions that are denominated in a foreign currency are translated into sterling at the rate of exchange ruling on the date of each transaction. Monetary assets and liabilities denominated in foreign currency at the year-end are translated at the rates ruling at that date unless a forward rate has been fixed with the Bank of England. All translation differences are included in the Statement of Revenue, Other Income and Expenditure for the period. 2 Revenue

2.1 CRC allowance sales

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Allowance sales | £'000 | £'000 | | | 440,280 | 580,201 | | Total | 440,280 | 580,201 |

2.2 EUETS auction income

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Phase III | £'000 | £'000 | | Auctions Income | 1,258,836 | 565,933 | | Aviation | 11,699 | 4,755 | | Total | 1,270,535 | 570,688 |

Dates for the carbon allowances auctions under Phase III and Aviation schemes pertaining to the EU ETS, along with number of units auctioned are available on the Intercontinental Exchange website on the auction calendar link at www.theice.com/emissions/auctions

2.3 CCA buy-out payments income

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Buy-out payment | £'000 | £'000 | | income receivable | 108 | 22,966 | | Total | 108 | 22,966 |

In 2018-19, the income from buy-out payments generated £107,760 (£22,966 million in 2017-18). This is due to 2018-19 being a period of secondary reporting for Target Reporting Period II which entailed top up payments as a result of audit or refunds only. The income relating to buy-out payments for the prior year comparatives is higher since 2017-18 was the Primary Reporting Period for Target Reporting Period II.

2.4 Civil penalties

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Levied under EU | £'000 | £'000 | | ETS Scheme | 2,745 | 2,021 | | Levied under ESOS | 272 | 17 | | Scheme | | | | Levied under CRC | 69 | 49 | | Scheme | | | | Levied under CCA | 1 | - | | Scheme | | | | Total | 3,087 | 2,087 |

There were 209 civil penalties totalling £2,745,088 (2017-18: 144 penalties totalling £2,020,584), levied under the EU ETS scheme for the year under review. CRC penalties of £69,090 were recognised in 2018-19 (2017-18: £49,000). 28 penalties totalling £272,202 (2017-18: 5 penalties totalling £17,110) were recognised under the ESOS scheme in 2018-19. 2 penalties totalling £565 were recognised under the CCA scheme for the first time in 2018-19. 3 Expenditure and disbursements

3.1 Costs incurred in the collection of receipts

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Foreign currency translation costs (EU ETS) | 1,248 | 424 | | Interest charges on Euro auction bank account (EU ETS) | 21 | 8 | | **Total** | 1,269 | 432 |

3.2 Credit losses

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | De-recognition due to successful appeal – EU ETS Penalties | - | 969 | | De-recognition of CRC penalty | - | 3 | | **Total** | - | 972 |

No penalties were appealed in 2018-19, with just 2 EU ETS penalties successfully appealed and written back in 2017-18. No disbursements are now paid out via the BEIS Trust Statement. However, the Department incurred expenditure of £668,113 (2017-18: £606,340) in administering EU ETS and £368,211 (2017-18: £430,037) in respect of the CRC Scheme. Expenditure to administer the CCA scheme totalled £357,643 (2017-18: £363,124). Expenditure incurred administering the ESOS scheme in 2018-19 amount to £915,405 (2017-18: £1,190,555). Expenditures on EU ETS, ESOS, CRC and CCA are included in the Department’s Accounts because there is no express statutory provision for these costs to be deducted from the revenue collected and paid over to the Consolidated Fund.

4 Receivables and accrued fees

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Civil Penalties receivable | 2,797 | 1,471 | | **Total** | 2,797 | 1,471 |

Civil penalties receivable represent the amounts due from the participants where invoices for payment have been issued but not paid for at the year end.

5 Cash and cash equivalents

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Balance as at 1 April | 23,921 | 17,087 | | Net change in cash and cash equivalent balances | 3,977 | 6,834 | | **Balance at 31 March** | 27,898 | 23,921 |

The following balances at 31 March were held at:

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Government Banking Service | 27,898 | 23,921 | | **Total** | 27,898 | 23,921 |

6 Payables

| | 2018-19 | 2017-18 | |----------------------|---------|---------| | Other | 324 | 404 | | **Total** | 324 | 404 | 7 Balance on the Consolidated Fund accounts

| | 2018-19 £'000 | 2017-18 £'000 | |--------------------------------|---------------|---------------| | Balance on the consolidated Fund as at 1 April | 24,988 | 19,022 | | Net revenue for the Consolidated Fund | 1,712,741 | 1,174,538 | | Less amounts paid to the Consolidated Fund | (1,707,358) | (1,168,572) | | Balance on the Consolidated Fund as at 31 March | 30,371 | 24,988 |

8 Financial instruments

8.1 Classification and categorisation of financial instruments

| Note | 2018-19 £'000 | 2017-18 £'000 | |------|---------------|---------------| | Financial assets | | | | Cash | 5 | 27,898 | 23,921 | | Civil penalties receivable | 4 | 2,797 | 1,471 | | Total financial assets | | 30,695 | 25,392 | | Financial liabilities | | | | Other Payables | 6 | (324) | (404) | | Total financial liabilities | | (324) | (404) |

8.2 Risk exposure to financial instruments

EU Emissions Trading Scheme The EU Emissions Trading Scheme is exposed to foreign currency risk due to the timing difference in recognising the proceeds at the auction exchange rate and the date at which the proceeds are converted into Sterling, which is one day after the close of the auction; this results in either an exchange loss or gain. As shown in note 3.1 there was an exchange loss incurred this financial year of £1,248,000 (2017-18: £424,000). The scheme is not exposed to interest rate or liquidity risk and its exposure to market risk is limited due to there being a current demand for carbon allowances.

The civil penalties imposed under the EU ETS scheme are subject to credit risk, but this risk is assessed by management as minimal due to the nature of the participants in the scheme. However, no penalties were written back in 2018-19. 2 aviation civil penalties were written off in 2017-18 (note 3.2) as the companies successfully appealed the penalties.

CRC Scheme The allowance sales under the Carbon Reduction Commitment are subject to credit risk, but this risk is assessed by management as low. This is borne out in the results from previous years of the scheme. The civil penalties imposed under the CRC scheme are subject to credit risk, but this risk is assessed by management as minimal due to the nature of the participants in the scheme.

CCA Scheme The buy-out payment revenue collected under the CCA scheme is subject to credit risk, but this risk is assessed by management as low, due to the nature of participants in the scheme. All fees under the regime are received in sterling minimising any other risks.

Information which will allow Trust Statement users to evaluate the significance of financial instruments on the Department’s financial performance and position and the nature and extent of the Department’s exposure to other risks arising from financial instruments can be found in note 23 to the Department’s Accounts.

9 Contingent liability

A contingent liability exists for refunds the Department may have to pay to participants in the CRC Energy Efficiency Scheme who have over-surrendered allowances. This is as a result of legislation included in the CRC Order 2013, which came into force in May 2013. The refunds are contingent upon participants being able to prove that the over- surrender was due to a reporting error and must be agreed by the Secretary of State.

The Department is unable to quantify the amount of future refunds, but based on the most recent information available from the scheme administrators, the refunds are not expected to be significant. Future refunds will be paid as and when they fall due out of future scheme receipts. The Department has issued guidance to participants detailing the refund process. Furthermore, for the CCA scheme a contingent liability also exists in the secondary reporting phase of each Target Reporting Period. This is where a participant has undergone review or audit procedures and it is deemed they have overpaid. Thus, the participant is due a refund. The Department must retain sufficient funds in order to satisfy this requirement of the CCA scheme.

10 Events after the reporting period

There were no significant events after the reporting period that require disclosure.

The Accounting Officer has duly authorised the issue of the Trust Statement on the date of the Comptroller and Auditor General’s audit certificate. Annex D: Annexes to the Trust Statement

Accounts Direction given by HM Treasury in accordance with section 2 of the Exchequer and Audit Departments Act 1921

1. This direction applies to those government departments listed in appendix 2.

2. The Department shall prepare a Trust Statement ("the Statement") for the financial year ended 31 March 2019 for the revenue and other income, as directed by the Treasury, collected by the Department as an agent for others, in compliance with the accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual by HM Treasury ("FReM") which is in force for 2018-19.

3. The Statement shall be prepared, as prescribed in appendix 1, so as to give a true and fair view of (a) the state of affairs relating to the collection and allocation of taxes, licence fees, fines and penalties and other income by the Department as agent and of the expenses incurred in the collection of those taxes, licence fees, fines and penalties insofar as they can properly be met from that revenue and other income; (b) the revenue and expenditure; and (c) the cash flows for the year then ended.

4. The Statement shall also be prepared so as to provide disclosure of any material expenditure or income that has not been applied to the purposes intended by Parliament or material transactions that have not conformed to the authorities which govern them.

5. When preparing the Statement, the Department shall comply with the guidance given in the FReM (Chapter 8). The Department shall also agree with HM Treasury the format of the Principal Accounting Officer’s Foreword to the Statement, and the supporting notes, and the accounting policies to be adopted, particularly in relation to revenue recognition. Regard shall also be given to all relevant accounting and disclosure requirements in Managing Public Money and other guidance issued by HM Treasury, and to the principles underlying International Financial Reporting Standards.

6. Compliance with the requirements of the FReM will, in all but exceptional circumstances, be necessary for the accounts to give a true and fair view. If, in these exceptional circumstances, compliance with the requirements of the FReM is inconsistent with the requirement to give a true and fair view, the requirements of the FReM should be departed from only to the extent necessary to give a true and fair view. In such cases, informed and unbiased judgement should be used to devise an appropriate alternative treatment which should be consistent with both the economic characteristics of the circumstances concerned and the spirit of the FReM. Any material departure from the FReM should be discussed in the first instance with HM Treasury.

7. The Statement shall be transmitted to the Comptroller and Auditor General for the purpose of his examination and report by a date agreed with the Comptroller and Auditor General and HM Treasury to enable compliance with the administrative deadline for laying the audited accounts before Parliament before the Summer Recess.

8. The Trust Statement, together with this direction (but with the exception of the related appendices) and the Report produced by the Comptroller and Auditor General under section 2 of the Exchequer and Audit Departments Act 1921 shall be laid before Parliament at the same time as the Department’s Resource Accounts for the year unless the Treasury have agreed that the Trust Statement may be laid at a later date.

Vicky Rock Interim Director, Government Financial Reporting HM Treasury Appendix 1 to Annex D

Trust Statement for the year ended 31 March 2019

1. The Trust Statement shall include:

   - a Foreword by the Principal Accounting Officer
   - a Statement of the Principal Accounting Officer’s Responsibilities
   - a Governance Statement
   - a Statement of Revenue, Other Income and Expenditure
   - a Statement of Financial Position
   - a Cash Flow Statement
   - such notes as may be necessary to present a true and fair view

2. The notes shall include among other items:

   - the accounting policies, including the policy for revenue recognition and estimation techniques and forecasting techniques together with statements explaining any significant uncertainty surrounding estimates and forecasts
   - a breakdown of material items within the accounts
   - any assets, including intangible assets and contingent liabilities
   - summaries of losses, write-offs and remissions
   - post balance sheet events
   - any other notes agreed with HM Treasury and the National Audit Office

Appendix 2 to Annex D

Application of the accounts direction

| Sponsoring Department | Income Stream | Responsible Entity | |-----------------------|--------------------------------|--------------------| | Department for Business, Energy and Industrial Strategy | EU Emissions Allowance | BEIS | | | Fines and Penalties | BEIS | | | CRC Allowances | BEIS | | | Climate Change Agreements | BEIS | The Construction Sector Deal - a partnership between the industry and government - aims to transform the sector’s productivity via innovative technologies and a more highly skilled workforce. Table 1 – Public spending This table provides a summary of departmental net expenditure using the same headings as voted within the Estimate.

| Resource DEL | 2014-15 Outturn £000 | 2015-16 Outturn £000 | 2016-17 Outturn £000 | 2017-18 Outturn £000 | 2018-19 Outturn £000 | 2019-20 Plans £000 | |--------------|-----------------------|----------------------|----------------------|----------------------|----------------------|---------------------| | Deliver an ambitious industrial strategy | 286,154 | 433,415 | 419,912 | 377,129 | 182,286 | 161,508 | | Maximise investment opportunities and bolster UK interests | 3,980 | 19,368 | 25,651 | 40,218 | 70,705 | 65,000 | | Promote competitive markets and responsible business practices | 71,654 | 71,310 | 78,724 | 85,923 | 94,443 | 139,461 | | Delivering affordable energy for households and businesses | 355,160 | 342,329 | 36,365 | 32,381 | 44,155 | 55,139 | | Ensuring that our energy system is reliable and secure | 18,822 | 11,560 | 5,823 | 4,201 | 4,756 | 13,090 | | Taking action on climate change and decarbonisation | 115,824 | 95,211 | 27,236 | 91,076 | 24,829 | 39,417 | | Managing our energy legacy safely and responsibly | 318,312 | 306,343 | 291,203 | 265,752 | 251,870 | 230,630 | | Science and Research | 10,819 | 13,540 | (1,985) | 5,088 | 4,608 | 250 | | Capability | 408,745 | 361,322 | 307,082 | 320,301 | 393,848 | 513,313 | | Government as Shareholder | 241,890 | 200,008 | 151,208 | 113,207 | 62,819 | 102,805 | | Deliver an ambitious industrial strategy (ALB) net | - | - | 5,433 | 15,172 | 15,147 | - | | Promote competitive markets and responsible business practices (ALB) net | 49,766 | 49,295 | 48,127 | 51,648 | 54,635 | 54,912 | | Ensuring that our energy system is reliable and secure (ALB) net | (280) | 674 | 1,707 | (1,628) | (2,667) | 1 | | Taking action on climate change and decarbonisation (ALB) net | 4,416 | 4,894 | 2,399 | 4,834 | 6,069 | 4,473 | | Managing our energy legacy safely and responsibly (ALB) net | 23,188 | 46,977 | 39,234 | 34,711 | 32,075 | 23,857 | | Science and Research (ALB) net | 41,696 | 88,406 | 257,413 | 234,283 | 276,226 | 284,022 | | Capability (ALB) Net | 59,268 | 39,218 | 39,818 | 33,635 | 30,475 | - | | Government as Shareholder (ALB) net | 16,238 | (30,023) | (3,034) | (73,072) | (19,479) | (32,828) | | NDA and SLC expenditure | 1,431,342 | 1,414,542 | 1,287,445 | 1,254,752 | 1,175,337 | 1,516,279 | | | 2014-15 Outturn | 2015-16 Outturn | 2016-17 Outturn | 2017-18 Outturn | 2018-19 Outturn | 2019-20 Plans | |--------------------------------|-----------------|-----------------|-----------------|-----------------|-----------------|---------------| | | £000 | £000 | £000 | £000 | £000 | £000 | | Nuclear Decommissioning Authority Income (CFER) | (1,008,787) | (974,558) | (1,026,768) | (1,176,795) | (978,373) | (1,060,000) | | Nuclear Safeguards Development | - | - | - | - | 1,189 | (2,275) | | Managing our energy legacy safely and responsibly (CFER) | - | - | - | - | - | (475,000) | | **Total Resource DEL** | 2,448,207 | 2,493,831 | 1,961,993 | 1,714,005 | 1,246,489 | 2,111,329 | | Of which: | | | | | | | | Staff costs | 518,385 | 548,832 | 519,570 | 533,290 | 605,821 | * | | Purchase of goods and services | 2,198,703 | 2,111,285 | 1,977,969 | 1,938,532 | 1,936,980 | * | | Income from sales of goods and services | (1,157,876) | (1,144,381) | (1,172,788) | (1,079,179) | (996,751) | (1,107,885) | | Current grants to local government (net) | 18,354 | 25,513 | 12,055 | 9,587 | 22,388 | 23,980 | | Current grants to persons and non-profit bodies (net) | 585,126 | 548,517 | 178,351 | 135,838 | 133,554 | 122,046 | | Current grants abroad (net) | 31,427 | 41,307 | 58,511 | 59,465 | 72,274 | 91,194 | | Subsidies to private sector companies | - | 246,476 | 274,038 | 526,638 | 141,423 | 124,000 | | Subsidies to public corporations | 230,402 | 183,035 | 145,239 | 95,170 | 61,530 | 50,000 | | Net public service pensions² | (7) | - | - | (9) | (12) | - | | Rentals | (63,400) | (47,642) | 40,608 | 49,177 | 37,077 | 36,715 | | Depreciation³ | 293,609 | 268,978 | 355,397 | 266,467 | 310,652 | 322,469 | | Take up of provisions | 23 | (30) | 780 | (165) | - | - | | Change in pension scheme liabilities | 12 | 35 | 128 | 1,372 | 547 | 170 | | Other resource | (206,551) | (288,094) | (427,865) | (822,178) | (1,078,994) | (174,656) |

**Resource AME**

| | 2014-15 | 2015-16 | 2016-17 | 2017-18 | 2018-19 | 2019-20 | |--------------------------------|---------|---------|---------|---------|---------|---------| | Deliver an ambitious industrial strategy | (93,804) | (7,428) | 215,413 | 17,448 | (312,599) | (74,565) | | Maximise investment opportunities and bolster UK interests | 3,881 | (457) | 1,844 | 1,586 | 6,044 | - | | Promote competitive markets and responsible business practices | 74,000 | 102,008 | 133,000 | 7,000 | 79,000 | 150,000 | | Ensuring that our energy system is reliable and secure | 342,599 | (309,667) | (3,204) | (415) | (295) | (27) | | Taking action on climate change and decarbonisation | 497,618 | 841,397 | (1,337,205) | - | - | - | | Activity | 2014-15 Outturn £000 | 2015-16 Outturn £000 | 2016-17 Outturn £000 | 2017-18 Outturn £000 | 2018-19 Outturn £000 | 2019-20 Plans £000 | |-------------------------------------------------------------------------|-----------------------|-----------------------|-----------------------|-----------------------|-----------------------|---------------------| | Managing our energy legacy safely and responsibly | (96,723) | (308,924) | (258,615) | (885,264) | (297,497) | (148,565) | | Science and Research | 87,581 | 49,871 | 41,888 | 45,578 | 205,985 | 101,333 | | Capability | (29,793) | (21,783) | (6,012) | 13,557 | (12,990) | (26,252) | | Government as Shareholder | 25,524 | (60,526) | (12,313) | (73,714) | 1,035 | 40,845 | | Renewable Heat Incentive | 158,946 | 372,420 | 545,426 | 687,275 | 817,898 | 1,010,000 | | Deliver an ambitious industrial strategy (ALB) net | (4,159) | 7,741 | (10,853) | 4,962 | (21,100) | (6,000) | | Promote competitive markets and responsible business practices (ALB) net| (243) | (161) | (59) | 87 | 57 | 181 | | Taking action on climate change and decarbonisation (ALB) net | 1,987,931 | 9,281,975 | 1,065,496 | 3,558,227 | (2,971,284) | - | | Managing our energy legacy safely and responsibly (ALB) net | (65,835) | 1,906,630 | 2,025 | 1,507,140 | (2,022,249) | (86,198) | | Science and Research (ALB) net | 48,830 | 107,287 | 91,411 | 94,536 | 41,299 | 9,182 | | Capability (ALB) Net | - | 2 | (400) | - | 1 | - | | Government as Shareholder (ALB) net | (148,034) | (56,337) | (26,653) | (25,628) | 93,768 | 36,796 | | Nuclear Decommissioning Authority | 5,644,353 | 89,797,932 | 2,850,516 | 69,911,856 | (101,791,292) | 1,620,000 | | Government as Shareholder | 239,776 | 254,256 | 231,511 | 259,815 | 319,330 | 328,000 | | **Total Resource AME** | **8,672,448** | **101,956,236** | **3,523,216** | **75,124,046** | **(105,864,889)** | **2,954,730** | | Of which: | | | | | | | | Staff costs | - | - | - | - | 4,404 | - | | Purchase of goods and services | 19,776 | 23,450 | 36,665 | 101,425 | 145,292 | - | | Income from sales of goods and services | (152) | - | - | - | (3) | - | | Current grants to persons and non-profit bodies (net) | 392,622 | 429,826 | 429,011 | 353,221 | 416,439 | 621,900 | | Subsidies to private sector companies | 158,943 | 372,420 | 545,426 | 687,275 | 817,898 | 1,010,000 | | Rentals | (139) | (91) | (718) | (2,456) | (2,198) | - | | Depreciation(^1) | 2,653,848 | 10,126,954 | 59,847 | 4,397,424 | (1,962,038) | 82,863 | | Take up of provisions | 6,022,459 | 91,967,474 | 2,984,041 | 71,236,030 | (101,359,925) | 1,703,913 | | Release of provision | (407,513) | (692,733) | (352,371) | (316,703) | (3,078,344) | (327,188) | | Change in pension scheme liabilities | 29,627 | 19,199 | 20,375 | 34,554 | 29,717 | - | | | 2014-15 Outturn | 2015-16 Outturn | 2016-17 Outturn | 2017-18 Outturn | 2018-19 Outturn | 2019-20 Plans | |--------------------------------|----------------|----------------|----------------|----------------|----------------|---------------| | | £000 | £000 | £000 | £000 | £000 | £000 | | Unwinding of the discount rate on pension scheme liabilities | 43,398 | 37,423 | 38,095 | 36,924 | 37,782 | 80 | | Other resource | (240,421) | (327,696) | (237,155) | (1,403,648) | (913,900) | (139,311) | | **Total Resource Budget** | 11,120,655 | 104,450,067 | 5,485,209 | 76,838,051 | (104,618,400) | 5,066,059 | | Of which: | | | | | | | | Depreciation¹ | 2,947,457 | 10,395,932 | 415,244 | 4,663,891 | (1,651,386) | 405,332 | | **Capital DEL** | | | | | | | | Deliver an ambitious industrial strategy | (345,273) | 289,783 | 298,132 | 142,364 | (54,606) | 98,816 | | Maximise investment opportunities and bolster UK interests | 190,635 | 319,887 | 303,527 | 289,791 | 243,957 | 270,000 | | Promote competitive markets and responsible business practices | 47 | (12,700) | 376 | 2,375 | 2,682 | 5,389 | | Delivering affordable energy for households and businesses | 137,266 | 131,102 | 42,201 | 43,633 | 32,718 | 58,009 | | Ensuring that our energy system is reliable and secure | 1,158 | 5,071 | (548) | 60 | (626) | 130 | | Taking action on climate change and decarbonisation | 47,620 | 54,871 | 39,569 | 51,578 | 73,121 | 278,862 | | Managing our energy legacy safely and responsibly | 7,103 | 5,017 | 7,747 | 7,944 | 4,278 | - | | Science and Research | 521,482 | 442,991 | 2,596,657 | 2,634,812 | 563,177 | 976,108 | | Capability | 11,027 | 11,929 | 10,181 | 18,777 | 30,305 | 244,438 | | Government as Shareholder | 106,569 | 227,462 | 8,535 | (96,042) | 175,871 | (88,839) | | Deliver an ambitious industrial strategy (ALB) net | - | - | 5 | 32 | - | - | | Promote competitive markets and responsible business practices (ALB) net | 1,559 | 940 | 1,027 | 1,377 | 1,059 | 1,160 | | Ensuring that our energy system is reliable and secure (ALB) net | 2,207 | 975 | 1,005 | - | - | - | | Taking action on climate change and decarbonisation (ALB) net | 4,004 | 959 | 601 | 39 | 255 | 99 | | Managing our energy legacy safely and responsibly (ALB) net | 5,895 | 12,243 | 8,778 | 13,559 | 9,503 | 14,650 | | | 2014-15 Outturn | 2015-16 Outturn | 2016-17 Outturn | 2017-18 Outturn | 2018-19 Outturn | 2019-20 Plans | |------------------------------|----------------|----------------|----------------|----------------|----------------|---------------| | | £000 | £000 | £000 | £000 | £000 | £000 | | Science and Research (ALB) net | 6,133,277 | 6,260,785 | 4,257,684 | 4,761,522 | 7,530,042 | 7,707,822 | | Capability (ALB) Net | 773 | 641 | 480 | 43 | 2,482 | - | | Government as Shareholder (ALB) net | 616,035 | 595,189 | 1,172,665 | 469,043 | 197,015 | 139,019 | | NDA and SLC expenditure | 1,845,932 | 1,827,695 | 1,970,695 | 2,051,013 | 2,002,699 | 1,755,000 | | Nuclear Decommissioning Authority Income (CFER) | (2,916) | (61,639) | - | - | - | - | | Total Capital DEL | 9,284,400 | 10,123,201 | 10,719,317 | 10,391,920 | 10,813,932 | 11,460,663 | | Of which: | | | | | | | | Staff costs | 499,321 | 480,039 | 477,555 | 480,982 | 502,376 | - | | Purchase of goods and services | 529,348 | 572,620 | 400,772 | 498,431 | 833,595 | - | | Income from sales of goods and services | (122,637) | (131,102) | (258,776) | (276,222) | (260,137) | (23,070) | | Current grants to persons and non-profit bodies (net) | 4,465,923 | 4,666,325 | 3,098,274 | 3,582,865 | 5,744,797 | 6,810,013 | | Current grants abroad (net) | 317,714 | 302,460 | 317,400 | 330,130 | 340,794 | 158,240 | | Subsidies to public corporations | (1,238) | (2,655) | 151,078 | 98,737 | - | 60 | | Capital support for local government (net) | 21,570 | 54,528 | 42,270 | 41,473 | 5,826 | 57,500 | | Capital grants to persons & non-profit bodies (net) | 998,596 | 999,113 | 424,678 | 482,446 | 888,564 | 1,104,893 | | Capital grants to private sector companies (net) | 131,354 | 155,115 | 239,455 | 21,138 | 32,893 | 167,213 | | Capital grants abroad (net) | 203,769 | 425,981 | 525,993 | 483,289 | 308,624 | 282,254 | | Capital support for public corporations | 90,278 | 170,203 | 147,126 | 81,835 | 204,229 | 92,290 | | Purchase of assets | 2,071,328 | 2,059,177 | 2,242,318 | 2,412,651 | 2,345,321 | 1,996,601 | | Income from sales of assets | (37,628) | (92,106) | (65,827) | (142,274) | (23,144) | - | | Net lending to the private sector and abroad | 519,050 | 630,964 | 1,069,550 | 253,812 | 22,276 | 326,171 | | Other capital | (372,348) | (167,461) | 1,907,451 | 2,042,627 | (132,082) | (22,449) |

**Capital AME**

- Deliver an ambitious industrial strategy: (35,000)
- Maximise investment opportunities and bolster UK interests: 17,413
- Managing our energy legacy safely and responsibly: (620,294)
- Science and Research: - | | 2014-15 Outturn | 2015-16 Outturn | 2016-17 Outturn | 2017-18 Outturn | 2018-19 Outturn | 2019-20 Plans | |--------------------------------|-----------------|-----------------|-----------------|-----------------|-----------------|---------------| | | £000 | £000 | £000 | £000 | £000 | £000 | | Government as Shareholder | 291,559 | 210,202 | 129,181 | (1,909) | (120,000) | - | | Renewable Heat Incentive | 1,697 | (22) | - | - | - | - | | Deliver an ambitious industrial strategy (ALB) net | 7,159 | 17,299 | 84,842 | (3,474) | (16,387) | 35,000 | | Science and Research (ALB) net | (7,149) | (55,972) | (61,156) | (63,845) | (59,692) | - | | Government as Shareholder (ALB) net | (1,206,678) | (430,678) | (129,935) | (119,122) | (115,399) | (77,070) | | Managing our energy legacy safely and responsibly (CFER) | - | - | - | - | (141,811) | (142,400) | | Government as Shareholder | - | - | - | - | (1,621,078) | - | | Government as Shareholder (ALB) net | - | (1,434,995) | - | - | - | - | | **Total Capital AME** | (1,615,641) | (1,629,965) | (14,507) | (1,196,772) | (416,665) | (178,999) | | **Of which:** | | | | | | | | Staff costs | (25,110) | (16,992) | (18,461) | (18,719) | (15,325) | - | | Purchase of goods and services | - | - | 834 | (7,325) | (2,330) | - | | Capital grants to persons & non-profit bodies (net) | 1,697 | (22) | - | - | - | - | | Capital grants to private sector companies (net) | (500,441) | (12,798) | (4,819) | (184,787) | - | - | | Capital grants abroad (net) | 17,413 | 2,310 | - | - | - | - | | Capital support for public corporations | 292,000 | 53,248 | 134,000 | 36,000 | (120,000) | - | | Purchase of assets | 79 | 350 | 54,158 | 318 | - | - | | Income from sales of assets | (264,404) | (32,150) | 15 | - | - | - | | Net lending to the private sector and abroad | (1,070,518) | (1,753,009) | (141,781) | (1,638,862) | (273,597) | (184,470) | | Other capital | (66,357) | 129,098 | (38,453) | 616,603 | (5,413) | 5,471 | | **Total Capital Budget** | 7,668,759 | 8,493,236 | 10,704,810 | 9,195,148 | 10,397,267 | 11,281,664 |

**Total departmental spending**

| | 15,841,957 | 102,547,371 | 15,774,775 | 81,369,308 | (92,569,747) | 15,942,391 | |--------------------------------|------------|-------------|------------|------------|-------------|------------| | **Of which:** | | | | | | | | Total DEL | 11,438,998 | 12,348,054 | 12,325,913 | 11,839,458 | 11,749,769 | 13,249,523 | | Total AME | 4,402,959 | 90,199,317 | 3,448,862 | 69,529,850 | (104,319,516) | 2,692,868 |

1 Includes impairments

2 Pension schemes report under FRS 17 accounting requirements. These figures therefore include cash payments made and contributions received, as well as certain non-cash items. Total departmental spending is the sum of the resource budget and the capital budget less depreciation. Similarly, total DEL is the sum of the resource budget DEL and capital budget DEL less depreciation in DEL, and total AME is the sum of resource budget AME and capital budget AME less depreciation in AME.

Figures for Plans for staff costs and purchase of goods and services, which include assumptions on future price and pay movements, are redacted in line with HMT guidance. Notes: The large increase in spend in 2014-15 and 2015-16 on Delivering affordable energy for households and businesses Resource DEL is due to the Government Electricity Rebate.

Resource DEL expenditure for Nuclear Safeguards Development is shown separately in 2017-18 as this expenditure was funded through a Contingencies Fund advance, pending passage of the Nuclear Safeguards Bill through Parliament. Repayment of that advance in 2018-19 was made against Capability DEL, offset by the credit shown against Nuclear Safeguards Development.

The receipt in 2018-19 against Managing our energy legacy safely and responsibly (CFER) Resource DEL relates to income from coal pension scheme surpluses.

The increase in spend in 2016-17 and 2017-18 against Science and Research Capital DEL and decrease against Science and Research (ALB) Capital DEL reflects the reclassification of expenditure for the Higher Education Funding Council for England (HEFCE) for Science and Research following the Machinery of Government transfer of HEFCE to the Department for Education. With effect from 2018-19 this expenditure falls under Research England as part of UKRI, under Science and Research (ALB).

The figures for Depreciation in Resource AME include the movement in fair value for Contracts for Difference, shown against Taking action on climate change and decarbonisation and Taking action on climate change and decarbonisation (ALB).

The large movements in take up of provisions within Resource AME in 2015-16, 2017-18 and 2018-19 is due to movements in the long term discount rate for provisions. This largely impacts the lines for Nuclear Decommissioning Authority and Managing our energy legacy safely and responsibly (ALB).

The receipt in 2017-18 against Government as Shareholder (CFER) Capital AME reflects the proceeds from the sale of the Green Investment Bank.

In their role as administrator of the Government’s GB Renewable Heat Incentive scheme, Ofgem made payments to scheme participants totalling £817,898,169 in the financial year 2018-19. Based on Ofgem’s sampling of the population and subject to our detailed assumptions, we can be 95% confident that the estimated value of error for GB Renewable Heat Incentive scheme payments made or accrued in the financial year 2018-19 is between the upper and lower limits of £21,765,747 and £43,175,637. Based on the same assumptions, the most likely estimated value of error for the same period is £32,470,692. This is less than 4 per cent of scheme spend in 2018-19. Table 2 - Administration Budget

| Resource DEL | 2014-15 Outturn £'000 | 2015-16 Outturn £'000 | 2016-17 Outturn £'000 | 2017-18 Outturn £'000 | 2018-19 Outturn £'000 | 2019-20 Plans £'000 | |--------------|------------------------|------------------------|------------------------|------------------------|------------------------|------------------------| | Deliver an ambitious industrial strategy | 1,935 | 583 | - | - | - | - | | Promote competitive markets and responsible business practices | 796 | 818 | 827 | 814 | 798 | 864 | | Managing our energy legacy safely and responsibly | - | - | (3,801) | - | - | - | | Science and Research | 58 | 59 | - | 2 | - | - | | Capability | 345,965 | 327,944 | 288,546 | 280,222 | 350,166 | 441,124 | | Government as Shareholder | 3,108 | 3,885 | 4,299 | 3,876 | 3,882 | 5,562 | | Promote competitive markets and responsible business practices (ALB) net | 10,102 | 8,630 | 7,362 | 8,735 | 8,783 | 8,539 | | Taking action on climate change and decarbonisation (ALB) net | 4,043 | 3,752 | 3,535 | 3,447 | 3,353 | 4,472 | | Managing our energy legacy safely and responsibly (ALB) net | 5,536 | 10,191 | 12,104 | 7,044 | 6,912 | 4,703 | | Science and Research (ALB) net | 7,305 | 4,685 | 986 | 3,371 | 5,547 | 3,722 | | Capability (ALB) Net | 59,268 | 39,218 | 39,818 | 33,635 | 30,475 | - | | Government as Shareholder (ALB) net | 267 | 251 | 162 | 27 | 52 | - | | NDA and SLC expenditure | 37,110 | 34,992 | 38,195 | 42,121 | 50,612 | 55,869 | | **Total Administration Budget** | **475,493** | **435,008** | **392,033** | **383,294** | **460,580** | **524,855** |

Of which:

- **Staff costs** | 341,753 | 365,590 | 329,069 | 326,207 | 385,642 | * |
- **Purchase of goods and services** | 179,482 | 145,800 | 159,274 | 154,657 | 177,278 | * |
- **Income from sales of goods and services** | (123,790) | (135,538) | (37,585) | (31,151) | (10,220) | (39,795) |
- **Current grants to persons and non-profit bodies (net)** | 30 | 29 | 38 | 493 | 425 | 91 |
- **Current grants abroad (net)** | 18 | 108 | 106 | 170 | 184 | - |
- **Subsidies to private sector companies** | - | - | - | 9 | - | - |
- **Subsidies to public corporations** | - | - | - | - | 28 | - |
- **Net public service pensions** | (7) | - | - | (9) | (12) | - |
- **Rentals** | 27,074 | 31,852 | 30,117 | 34,299 | 22,485 | 23,853 |
- **Depreciation** | 30,738 | 29,956 | 27,034 | 22,901 | 18,850 | 34,754 |
- **Take up of provisions** | (12) | 2 | - | (50) | - | - |
- **Change in pension scheme liabilities** | (65) | 25 | 106 | 184 | 141 | - |
- **Other resource** | 20,272 | (2,816) | (116,126) | (124,416) | (134,221) | (11,158) |

* Figures for Plans for staff costs and purchase of goods and services, which include assumptions on future price and pay movements, are redacted in line with HMT guidance. Annex B: Glossary

ACAS: Advisory, Conciliation and Arbitration Service AFS: Available for Sale AHRC: Arts and Humanities Research Council AI: Artificial intelligence ALB: Arm’s-length Bodies AME: Annual Managed Expenditure ARAC: Audit and Risk Assurance Committee BAES: BAE Systems BBB: British Business Bank Plc BBIL: British Business Investments Ltd BBSRC: Biotechnology and Biological Sciences Research Council BEIS: Department for Business, Energy and Industrial Strategy BFP: Business Finance Partnership BIS: Department for Business, Innovation and Skills, one of our predecessor departments BNFL: British Nuclear Fuels Ltd BVCA: British Venture Capital Association CAT: Competition Appeal Tribunal CAV: Connected Autonomous Vehicles CCA: Climate Change Agreements CCC: Committee on Climate Change CCL: Climate Change Level CCUS: International Carbon, Capture and Storage CEO: Chief Executive Officer CERN: European Organisation for Nuclear Research CETV: Cash Equivalent Transfer Value CfD: Contracts for Difference CFP: Committee on Fuel Poverty CNPA: Civil Nuclear Police Authority CNPP: Civil Nuclear Pension Plan CRC: Carbon Reduction Commitment CSOPS: Civil Servant and Other Pension Scheme DDM: Dynamic Dispatch Model DECC: Department for Energy and Climate Change, one of our predecessor departments Defra: Department for Food, Environment and Rural Affairs DEL: Departmental Expenditure Limit DfE: Department of Education ECF: Enterprise Capital Fund ECL: Expected Credit Loss EDFE: EDF Energy Nuclear Generation Limited EFG: Enterprise Financial Guarantee EHL: Enrichment Holdings Limited EII: Energy Intensive Industries EMR: Electricity Market Reform EPSRC: Economic and Physical Sciences Research Council ERDF: European Regional Development Fund ESA: European Space Agency ESC: Electricity Settlements Company ESO: European Southern Observatory ESOS: Energy Savings Opportunity Scheme ESRC: Economic and Social Research Council EUA: European Union Allowance EUAA: European Union Aviation Allowance EU ETS: EU Emissions Trading Scheme EUV: Existing-use Value ExCo: Executive Committee FDP: Funded Decommissioning Programme FiDeR: Financial Investment Decision Enabling for Renewables FLS: Future Leaders Scheme FRC: Financial Reporting Council FReM: Government Financial Reporting Manual FVOCI: Fair Value through Other Comprehensive Income FVPTL: Fair Value for Profit and Loss GCRF: Global Challenges Research Fund GDF: Geological Disposal Facility GDPR: General Data Protection Regulation GGC: Greening Government Commitments GHG: Greenhouse Gas GIAA: Government Internal Audit Agency GIB: Green Investment Bank Ltd GMPP: Government Major Projects Portfolio GPA: Government Property Agency GRAA: Greenhouse Resources and Accounts Act HEFCE: Higher Education Funding Council for England HMRC: HM Revenue and Customs HNIIP: Heat Networks Investment Project HPC: Hinkley Point C IAEA: International Atomic Energy Agency IDB: Inter-American Development Bank IDP: Individual Development Programme IAS: International Accounting Standards IFRS: International Financial Reporting Standards INSS: Insolvency Service IPCC: Inter-Governmental Panel on Climate Change IRR: Internal Rate of Return ISCF: Industrial Strategy Challenge Fund ITER: International Thermonuclear Experimental Reactor IUK: Innovate UK (Technology Strategy Board) JET: Joint European Torus JPA: Joint Procurement Agency LCCC: Low Carbon Contracts Company Ltd LEP: Local Enterprise Partnerships LLC: Local Land Charges LTP: Life Time Plan MDG: Millennium Development Goals MEIL: Midlands Engine Investment Ltd MHCLG: Ministry of Housing, Communities and Local Government MRC: Medical Research Council MRCPS: Medical Research Council Pension Scheme NAO: National Audit Office NDA: Nuclear Decommissioning Authority NDC: Nationally Determined Contributions NDPB: Non-Departmental Public Bodies NERC: Natural Environment Research Council NESTA: National Endowment for Science, Technology and the Arts NFL: Nuclear Liabilities Fund NGC: Nominations and Governance Committee NIF: National Insurance Fund NMDF: National Battery Manufacturing Development Facility NNHL: National Nuclear Holdings Ltd NPIL: Northern Powerhouse Investment Ltd NPLML: NPL Management Ltd OCI: Other Comprehensive Income ODA: Official Development Assistance Ofgem: Office of Gas and Electricity Markets OGA: Oil and Gas Authority ONS: Office for National Statistics OPRED: Offshore Petroleum Regulator for Environment and Decommissioning OSL: Ordnance Survey Limited PBL: Parliamentary Business and Legislation Committee PBO: Parent Body Organisation PCFP: Parliamentary Contributory Pension Fund PCSPS: Principal Civil Service Pension Scheme PDC: Public Dividend Capital PES: Public Expenditure System PEVC: International Private Equity and Venture Capital PFR: Performance Finance and Risk Committee PSH: Postal Services Holding Company Ltd PIC: Projects and Investment Committee PNC: Police National Computer PO: Partner Organisations POpCo: People and Operations Committee POL: Post Office Ltd PPE: Property, Plant and Equipment PV: Present Value QA: Quality Assurance R&D: Research and Development RMPP: Royal Mail Pension Plan RPC: Regulatory Policy Committee RPS: Redundancy Payment Services RSRL: Research Sites Restoration Limited RWM: Committee on Radioactive Waste Management SCS: Senior Civil Service SDG: Sustainable Development Goals SDP: Single Departmental Plan SFLG: Small Firms Loan Guarantee Scheme SI: Statutory Instrument SLC: Site Licence Company SLS: Senior Leaders Scheme SME: Small and Medium sized Enterprise SoCNE: Statement of Comprehensive Net Expenditure SoFP: Statement of Financial Position SoPS: Statement of Parliamentary Supply SOSIA: Secretary of State Investor Agreement SPRC: Strategic Policy Review Committee SRMC: Short Run Marginal Cost STFC: Science and Technology Facilities Research Council STSC: South Tees Site Company Ltd SULCO: Start Up Loans Company TCD: Target Commissioning Date TCW: Target Commissioning Window TLM: Transmission Loss Multiplier TME: Total Managed Expenditure UKAEA: UK Atomic Energy Authority UKGIP: UK Green Infrastructure Platform Ltd UKIIF: UK Innovation Investment Fund UKRI: UK Research and Innovation UKSA: UK Space Agency UKSBS: UK Shared Business Services Ltd VAT: Value Added Tax WTC: Waste Transfer Contract